Are you aware of your business’s annualised salary provisions and obligations? It may be time to conduct an annual salary review, particularly given recent and ongoing changes to legislation that ensure employees are paid appropriately by their employers.
As an employer, it is crucial for you to keep up with annualised salary changes as these can have a significant impact on your business operations and employees. Outlined below is an overview of annualised salaries, recent changes in Australia and best practices for managing these changes.
What are Annualised Salary Arrangments?
Annualised salary arrangements are when an employer and employee agree on an annual salary that includes all entitlements in terms of the relevant Modern Award – e.g. minimum wages, allowances, overtime rates, penalty rates, and annual leave loading.
Essentially, instead of paying each entitlement separately, the annualised salary arrangement specifies you will pay your employee one “annualised salary” that covers all the award entitlements.
Unfortunately, some employers do not communicate with their employees about what is included in their salary. Often times, the employer also has not calculated what the total of the Award base rate plus Award terms and conditions the employee is entitled to as a minimum. This can result in underpayment of entitlements – e.g. penalties for work on weekends or overtime.
It is important to note many businesses are unintentionally failing to meet compliance requirements, leading to front-page news and serious consequences for businesses of all sizes.
Australian Annualised Wage Requirement
In March 2020, the Fair Work Commission made changes to the annualised salary provisions in many modern awards. The changes require employers to keep detailed records of employees’ hours worked (including start and finish times and unpaid breaks) and to conduct annual to ensure employees are not being underpaid.
The awards affected by the changes include the following modern awards:
- Banking, Finance and Insurance Award
- Broadcasting Award
- Clerks Award
- Contract Call Centres Award
- Hydrocarbons Industry (Upstream) Award
- Legal Award
- Local Government Award
- Manufacturing Award
- Mining Award
- Oil Refining and Manufacturing Award
- Pharmacy Award
- Rail Award
- Salt Award
- Telecommunications Award
- Water Award
- Wool Award
The changes aim to prevent underpayments such as those highlighted in the media . Underpayments damage a business’s reputation and lead to financial (and sometimes legal) consequences.
Salary Changes and Best Practices for Compliance
To remain compliant to mitigate against legal repercussions, here are a few best practices you as an employer should follow:
- Confirm with your employees the details of their annualised salary arrangement, including the entitlements that are considered when calculating their salary and how the total amount is determined. It is best practice to include this information should be included in the employment agreement.
- Ensure the annualised salary is no less than the entitlements stated in the relevant Modern Awards. The total annualised salary must be at least equivalent to the wages the employee would have received if they were paid strictly in accordance with the relevant Modern Award.
- Perform a review in February of each year to compare the total annualised salary paid to employees versus what they would have received if paid according to the Modern Award. If there is a shortfall, you must pay the difference to the employee within 14 days, as well as any superannuation implications.
- Keep precise records of the employee’s work start and finish times, including any unpaid meal breaks. This will assist in accurately conducting the annual comparison.
The points outlined above should act as a solid foundation to your strategy. If you’d like to know more about best practices for your specific business case or industry, feel free to reach out to our team of HR experts for an obligation-free chat where we can discuss your concerns.
Tips for Communicating Changes to Employees
It is essential to communicate any changes to employees in a clear and concise manner. Here are some tips for effectively communicating annualised salary changes:
- Provide written notice to employees about the changes and the reasons behind them.
- Use plain language and avoid technical terms or jargon.
- Encourage employees to ask questions and provide them with opportunities to seek clarification.
- Provide training and support to employees on how to keep accurate records of their hours worked.
Akyra’s Key Takeaways
- When paying employees using an annualised wages framework, employers should have a clear understanding of their legal obligations in regard to all employee entitlements detailed in the relevant Modern Award.
- It’s important to establish clear and concise employment agreements that outline any annualised salary arrangements and what is incorporated in those arrangements.
- Accurate record-keeping is crucial to ensure compliance and avoid disputes related to employee entitlements and salary.
- Regular reviews of employee salaries and entitlements are necessary to ensure compliance with Modern Awards and other legal requirements.
- Employers must take an active role in educating themselves on relevant laws and regulations and should seek professional advice as required.
Annualised salary changes and increases are essential for maintaining compliance with the relevant awards and ensuring employees are not underpaid. Employers need to keep accurate records of their employees’ hours, conduct annual wages analysis and effectively communicate any changes to their employees.
In so doing, employers can maintain a positive workplace culture and avoid legal and financial consequences. If you need help managing annualised salary changes or have any questions, it is always a good idea to seek advice from an HR consulting company like Akyra.
Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not intended to be legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.