Blog

HR news and updates from the E.L Blue Team

Annualised Wages: an unfunded liability?

6 Jul 2020 | Payroll

Are you building an unfunded liability ?

If you haven’t actioned this your business is no longer compliant!

‘Annualised Wage’ arrangements have been one of the leading causes for the highly publicised wage underpayment scandals that have rocked Australia recently.  In February, the Fair Work Commission handed down a number of determinations to address the ‘Annual Wage’ issue, however, faced with a world of business shut downs, social distancing and isolation policies, many organisations have struggled to implement the new administrative requirements.

The Fair Work Commission,  handed down determinations for 18 Awards, with more awards to follow, which include new model clauses for ‘Annualised Wages’.

This came into effect from 1 March 2020.

In essence an ‘Annual Wage’ paid to an employee covered by an award must NOT be less than what they would’ve been paid over the year if they were paid all of the minimum award entitlements for their work.    There are now very onerous administrative requirements for companies to remain compliant.  Penalties apply if companies don’t meet these administrative requirements.

To get on top of these changes, companies must undertake these steps;

  1. Identify employees on an Annualised Wage that may be subject to a Modern award.
  2. In all likelihood this is anyone on a salary less than $153,600.
  3. Review Awards to see which apply to employees with an ‘Annualised Wage’.
  4. Assess Award clauses to check all the various entitlements including OT, Leave Loading and allowances.
  5. For employees covered by the awards that have new model clauses, you MUST do the following;
    1. Decide on the communication strategy and start the process with managers and also employees.
    2. Review hours worked with line managers to set outer limits for overtime and ordinary hours worked.
    3. Review current annual salary to assess if the employee is better off under the existing Annualised Wage arrangement, if not, adjustments will need to be made.
    4. Establish time sheet / time recording and approval arrangements for employees covered by ‘Annualised Wage’ arrangements.
    5. Prepare contract addendum specifying what makes up the annualised wage.
    6. Advise employees of any changes and provide necessary documentation.
    7. Schedule monthly reconciliation for all employees and make OT payments if in excess of established outer limits.
    8. Prepare for annual reconciliation for all employees on an ‘Annualised Wage’ arrangement.
  6. It is important to review ALL annualised wage arrangements and make necessary preparations because the FairWork Commission will be reviewing all ‘Annualised Wage’ provisions in the Modern Awards as part of the 4 year review process.

E.L Blue’s HR managers have found that there are three major challenges around implementing these requirements.

  1. the level  of analysis required for each employee on an annualised salary or wage arrangement  to ensure the Annual Wage being paid meets the minimum Award entitlements;
  2. developing a  communication plan  for managers and employees that addresses any risks associated with the review process and ensures that all stakeholders understand and are engaged in the process;
  3. dealing with the concerns  from both management and employees through the review process and as the new administrative requirements are established.

While many employers have used an ‘Annualised Salary or Wage’ arrangement to simplify the payment of complex Award entitlements, the recent determinations and proscriptive requirements set by Fair Work have exponentially  increased the workload and complexity.

E.L Blue has a resource pack that can assist you with the process. Contact christianb@el.com.au for a copy.