Is your business keeping track of your annualised salary provisions and obligations? It might be time to conduct an annual salary review.
With wage changes scheduled to be announced by Fair Work in late June with effect from 1 July 2022, pre-planning will help businesses keep on top of their cash flow. We all know how quickly time flies and, if left until the next quarter, you might not have time to complete a considered review.
Depending on when your business introduced annualised salary provisions, you may be due to reconcile from 1 March 2022. This will apply if your full-time employee is on an annualised salary arrangement on or before 1 March 2021, is still employed by your business, and is covered by a Modern Award.
Although some Modern Awards already contained annualised salary provisions (e.g. Hospitality Industry Award and Restaurant Industry Award), standard annualised salary provisions were introduced from 1st March 2020 in many other Modern Awards.
To help minimise the confusion and to help prepare your business for its annual wage review, we spoke with Akyra’s trusted Legal Advisor, Jeanette Jifkins from Onyx Legal, to provide some helpful pointers to ensure businesses have adequate compliance in place.
What is an Annualised Salary Arrangement?
An annualised salary arrangement is when an employer and employee agree on an annual salary that includes all entitlements in terms of the relevant Modern Award, such as:
- Minimum wages
- Overtime rates
- Penalty rates
- Annual leave loading
Instead of paying each entitlement separately, the annualised salary arrangements specify the employer will pay their employee one “annualised salary” that covers all the award entitlements.
Too often, employers are not communicating with their employees about what is included in their salary and what that means for the employee. For employers who are concerned or have questions about having this conversation, please consult the team at Akyra. A significant concern and common problem are that employers are not paying a high enough annualised salary to cover ALL the applicable entitlements – e.g. reasonable overtime or penalties for work at weekends or overtime.
As a result, annualised salary arrangements are often seen as being advantageous for the employer and disadvantageous for employees.
Front Page News – For the Wrong Reasons
Many businesses are unintentionally failing to meet compliance requirements and landing themselves in hot water (not to mention front-page news). So it is critical that you understand what’s expected of any annualised salary obligations.
In case you’ve not been following the news, here’s a quick recap of some big names making headlines in recent months for underpaying annualised salary employees:
- Coles allegedly underpaid 7,800 salaried employees more than $115 million
- Woolworths Group was forced to pay $50 million to salaried employees in underpayments
- Westpac was forced to pay $6million to salaried employees in underpaid long-service leave entitlements
These recent examples should serve as a warning to businesses of all shapes and sizes – i.e. there are serious consequences for not prioritising workplace law compliances.
A timely reminder that a “set and forget” approach to paying workers simply won’t cut it.
Top tips from Onyx Legal
Onyx Legal has shared some helpful steps and tips to ensure your business has adequate compliance in place.
1. Advise employees of annualised salary arrangements
As a business owner, you have an obligation to advise your employees, in writing, of the total annualised salary they will be paid including which entitlements are taken into account when calculating the annualised salary (e.g. overtime, allowances, and penalty rates) and how the total has been calculated. This should be included in the employment agreement or contract.
2. Ensure the annualised salary is at least equal to any Modern Awards entitlements
You must ensure the total annualised salary is at least equal to wages the employee would have received if they were paid strictly in accordance with the relevant Modern Award.
One way to do this is to take a historical snapshot of a recent 3 months of work done by an employee, then calculate what the employee would have been paid under the Award if all entitlements and allowances had been paid. Then compare these findings to what the employee was actually paid.
If the employee was paid equal to or more than if paid strictly in accordance with the Modern Award, absolutely happy days.
However, If the employee has been paid less under the annualised salary arrangement than if paid strictly in accordance with the Modern Award, then you will have to pay the difference (including any superannuation obligations).
If you have employees who work varying shifts with different allowances, it can take some time to work out how much they would have been paid under the relevant Modern Award; but it is worth the effort.
3. Conduct a 12-month review
To help keep your business on track, it’s highly recommended a review is conducted every 12 months to compare the total annualised salary paid to employees versus what the employee would have received if paid in accordance with the Modern Award.
If a shortfall is identified (e.g. the employee received too little pay over the 12-month period), you are required to pay the difference to the employee within 14 days (plus any superannuation implications).
If an employee resigns (or employment is terminated for whatever reason before the 12-month audit), you are obligated to complete the audit at the time employment finishes and ensure any shortfall is paid with their final pay.
4. Keep Accurate Records
To conduct the annual comparison accurately, you are required to keep records of when the employee starts/finishes work including any unpaid meal breaks for every shift the employee works.
These records must be kept for a minimum of seven years.
With many employers failing to keep such records, questions are often asked about what needs to be done. Chat to the team at Akyra who can help.
NEED MORE INFORMATION?
Akyra can help your business to assist and support all your questions and concerns related to employee entitlements. Please contact Akyra on 07 3204 8830 or book a free 30-minute consultation for an obligation-free conversation.
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.
https://www.fwc.gov.au/awards-and-agreements/minimum-wages-conditions/annual-wage-reviews. https://www.fairwork.gov.au/newsroom/media-releases/2021-media-releases/june-2021/20210618-woolworths-litigation-media-release, https://employsure.com.au/blog/annualised-salary-reconciliation-reminder/