New Award Rules To Reduce Underpayments

New Award Rules To Reduce Underpayments

19 February 2020

New rules apply to annualised wage arrangements in some awards following the Fair Work Commission’s (FWC) decision on 12 February 2020 to finalise variations to a number of modern awards. See decision here. 

The changes are intended to reduce award non-compliance and come in the wake of a series of high-profile underpayment claims including George Calombaris’ chain of restaurants.

From 1 March 2020, the new model clauses will require employers to meet detailed record keeping requirements, notify employees of their maximum ordinary hours and pay for excess hours worked in a pay or roster cycle. In addition, employers will need to undertake an annual comparison against award entitlements to ensure that employees are not underpaid when placed on annualised wage arrangements.

Affected awards

The FWC has varied 22 modern awards, including these awards most relevant to CCER members:

  • Clerks Private Sector Award 2010
  • Banking, Finance and Insurance Award 2010
  • Hospitality Industry (General) Award 2010
  • Health Professionals and Support Services Award 2010

At this stage, the FWC has finalised changes for the Clerks – Private Sector Award 2010 (Clerks Award) and the Banking, Finance and Insurance Award 2010 (Banking Award), and these awards will be the focus of this article. Changes to the Hospitality Industry (General) Award and the Health Professionals and Support Services Award 2010 are yet to be finalised and CCER will release further updates as new information becomes available.

Changes for the Clerks Award and Banking Award

Eligibility – annualised wage arrangements apply to full-time employees only.

Detailed record keeping requirements – employees must be advised in writing of :

  • the actual annualised wage payable
  • the specific provisions of the award that will be satisfied by the annualised arrangement e.g. minimum wages, overtime, loadings, penalties, allowances etc.
  • the method used for calculating the annualised wage, including a breakdown of the specific components that make up the total wage and any assumptions made for calculating potential overtime or penalties.

Maximum limits on hours worked – employees must also be advised in writing for a single roster/pay cycle of :

  • the maximum number of ordinary hours an employee could work which would attract the payment of a penalty rate, and the maximum number of overtime hours an employee could work, before earning in excess of the annualised wage.

Separate payment for excess hours worked  – employees must be paid separately for any hours worked in excess of the above specified limits in a single roster/pay cycle, in accordance with the relevant award provisions.

Annual wage reconciliation – every 12 months from the commencement of the annualised wage arrangement, or upon termination of employment, employers must calculate what each employee would have otherwise received had they been paid in accordance with award rates and compare this with the employee’s annualised wage. Any shortfall must be rectified within 14 days.

Time-keeping records – employers are required to record the start and finish times of work and any unpaid breaks taken for all shifts, and these records are to be signed/acknowledged as correct in writing by the employee (including by electronic means) for each roster/pay cycle.

Base rate of pay applies – for the purposes of the National Employment Standards, the base rate of pay of an employee receiving an annualised wage is equivalent to the applicable pay rate in the Minimum Wages section of each award. This excludes any incentive-based payments, bonuses, loadings, allowances, overtime and penalties.

Please note that the above information serves as an outline of the most significant changes from this decision. To view the obligations in full, please check the modern award(s) terms that apply to your organisation here.

What about annualised wages in a contract of employment?

A common alternative to an annualised wage arrangement in a modern award is the use of a ‘set-off’ clause in an employee’s contract of employment. A set-off clause aims to satisfy, or set-off, the obligation to pay particular award entitlements (such as overtime and penalty rates) by paying an annualised wage that compensates for these entitlements.

This decision is no barrier to employers continuing to use set-off clauses in contracts but it is important to note that for any employee covered by a modern award that contains annualised wage provisions, a set-off clause in their contract will not reduce the obligation to comply with the provisions of that particular modern award. The level of detail required to meet the additional award requirements listed above would in most cases not be suitable to include in a contract of employment and may be more appropriately facilitated by way of a separate letter.

What this means for you:

CCER advises our members to:

  • Review and become familiar with the annualised wage provisions in any modern award(s) applicable to your organisation
  • Review the salaries of employees currently on an annualised wage arrangement to ensure they are not being underpaid in relation to what they would otherwise be entitled to receive under the relevant award
  • Ensure that you have the necessary payroll systems and processes in place to fulfill the obligations of the new model clause(s)
  • Consider whether your organisation will continue offering annualised wage arrangements under the relevant modern award, or whether you wish to explore alternatives (such as simply paying ordinary hours, overtime and penalty rates in accordance with the award).

For any members who would like further information, or are considering alternatives to an annualised wage arrangement in accordance with a modern award, please contact us on 9390 5255 or  

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