FWC Proposes the Introduction of Additional Requirements for Award Based Annualised Wage Arrangements

Summary

The Fair Work Commission (FWC) handed down its interim decision regarding Annualised Wage Arrangements as part of its four yearly review of Modern Awards on 27 February 2019.

A key change to the current Annualised Wage Arrangements proposed by the interim decision is the move towards two model clauses for such arrangements that will introduce the following requirements for the first time:

A record keeping obligation for employers; and
The need for employers to conduct a reconciliation each year.

The FWC invited further submissions from interested parties in response to its interim decision which have been submitted during April 2019 such that it is anticipated that a final decision regarding Annualised Wage Arrangements will be handed down shortly.

We discuss the proposed key changes to Annualised Salary Arrangements as contained in the interim decision of the FWC below.

The statutory framework

A modern award may include a number of terms that are identified in the Fair Work Act (Cth) 2009 (FW Act), including:

Annualised wage arrangements that:

(i) have regard to the patterns of work in an occupation, industry or enterprise; and

(ii) provide an alternative to the separate payment of wages and other weekly entitlements; and

(iii) include appropriate safeguards to ensure that individual employees are not disadvantaged.

The FWC is, in turn, required to conduct a four yearly review of the terms of modern awards in accordance with section 156 of the FW Act.

Current annualised wage arrangements

A total of 19 modern awards, including key awards such as the Private Sector Clerks Awards and the Manufacturing Industry Award, contain a term which regulates Annualised Wage Arrangements.

The Annualised Wage Arrangements clause which is contained in the Private Sector Clerks Award which is similar, in effect, to the same clause found in other modern awards and is as follows:

17.1 Annual salary instead of award provisions

(a) An employer may pay an employee an annual salary in satisfaction of any or all of the following provisions of the award:

(i) clause 16—Minimum weekly wages;

(ii) clause 19—Allowances;

(iii) clauses 27 and 28—Overtime and penalty rates; and

(iv) clause 29.3—Annual leave loading.

(b) Where an annual salary is paid the employer must advise the employee in writing of the annual salary that is payable and which of the provisions of this award will be satisfied by payment of the annual salary.

17.2 Annual salary not to disadvantage employees

(a) The annual salary must be no less than the amount the employee would have received under this award for the work performed over the year for which the salary is paid (or if the employment ceases earlier over such lesser period as has been worked).

(b) The annual salary of the employee must be reviewed by the employer at least annually to ensure that the compensation is appropriate having regard to the award provisions which are satisfied by the payment of the annual salary.

17.3 Base rate of pay for employees on annual salary arrangements

For the purposes of the NES, the base rate of pay of an employee receiving an annual salary under this clause comprises the portion of the annual salary equivalent to the relevant rate of pay in clause 16 minimum weekly wages and excludes any incentive-based payments, bonuses, loadings, monetary allowances, overtime and penalties.

New current annualised wage arrangements

In its four yearly review of modern awards, the FWC has sought, where possible, to introduce model clauses across modern awards.

As such, the FWC’s proposal to introduce two model Annualised Wage clauses (the form of which is set out below in Model Clause 1 & 3) across those modern awards that contain such clauses should not be a surprise.

Employers Groups are disappointed with the form of the two model clauses that propose the introduction of new requirements, in particular record keeping and reconciliation requests, that will increase the compliance requirements on employers who utilise Annualised Wage Arrangements.

The FWC rationale for the proposed introduction of a reconciliation requirement was that a number of Annual Salary Arrangements clauses in existing model awards were not drafted in such a manner as to ensure that employees were not disadvantaged as required by section 139(1)(iii) of the FW Act.

A reconciliation requirement was thought to be the most effective means of ensuring that there was no employee disadvantaged by an Annualised Wage Arrangement entered into under a modern award.

The FWC also concluded that a record keeping requirement was a necessary incident of the requirement to conduct an annual reconciliation.

An opportunity was, as discussed, provided for interested parties to lodge further limited submissions in relation to the proposed introduction of these new requirements.

The AiG, the ASU and several other interested parties have made further submissions during March and April 2019 that deal with several issues, in particular, the need for and nature of transitional provisions.

Comment

A number of private sector employers use annual salary arrangements for the award based employees in their business. This is primarily for administrative and payroll convenience.

The FWC’s interim decision that there is a need to introduce additional requirements, in particular, a reconciliation requirement for annual salary arrangements will increase the administrative burden of these arrangements for employers.

Employers are likely to continue with annual salary arrangements despite these proposed additional requirements diminishing some of the advantages to employers in entering into such arrangements.

To obtain advice as to your compliance obligations in preparation for these additional requirements for annual salary arrangements for award based employees (which can be expected to be introduced by the FWC later this year) please contact a member of our Employment Team.

MODEL CLAUSE 1

MODEL CLAUSE 3

X. Annualised wage arrangements

X.1 Annualised wage instead of award provisions

(a) An employer may pay a full-time employee an annualised wage in satisfaction, subject to clause X.1(c), of any or all of the following provisions of the award:

(i) clause X – Minimum weekly wages;

(ii) clause X – Allowances;

(iii) clause X – Overtime penalty rates;

(iv) clause X – Weekend and other penalty rates; and

(iv) clause X – Annual leave loading.

(b) Where an annualised wage is paid the employer must advise the employee in writing, and keep a record of:

(i) the annualised wage that is payable;

(ii) which of the provisions of this award will be satisfied by payment of the annualised wage;

(iii) the method by which the annualised wage has been calculated, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation; and

(iv) the outer limit number of ordinary hours which would attract the payment of a penalty rate under the award and the outer limit number of overtime hours which the employee may be required to work in a pay period or roster cycle without being entitled to an amount in excess of the annualised wage in accordance with clause X.1(c).

(c) If in a pay period or roster cycle an employee works any hours in excess of either of the outer limit amounts specified pursuant to clause X.1(b)(iv), such hours will not be covered by the annualised wage and must separately be paid for in accordance with the applicable provisions of this award.

X.2 Annualised wage not to disadvantage employees

(a) The annualised wage must be no less than the amount the employee would have received under this award for the work performed over the year for which the wage is paid (or if the employment ceases earlier over such lesser period as has been worked).

(b) The employer must each 12 months from the commencement of the annualised wage arrangement or upon the termination of employment of the employee calculate the amount of remuneration that would have been payable to the employee under the provisions of this award over the relevant period and compare it to the amount of the annualised wage actually paid to the employee. Where the latter amount is less than the former amount, the employer shall pay the employee the amount of the shortfall within 14 days.

(c) The employer must keep a record of the starting and finishing times, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement for the purpose of undertaking the comparison required by clause X.2(b). This record must be signed by the employee each pay period or roster cycle.

X.3 Base rate of pay for employees on annual salary arrangements

For the purposes of the NES, the base rate of pay of an employee receiving an annual salary under this clause comprises the portion of the annual salary equivalent to the relevant rate of pay in clause X—Minimum weekly wages and excludes any incentive-based payments, bonuses, loadings, monetary allowances, overtime and penalties.

X.1 Annualised wage instead of award provisions

(a) An employer and a full-time employee may enter into a written agreement for the employee to be paid an annualised wage in satisfaction, subject to clause X.1(c), of any or all of the following provisions of the award:

(i) clause X – Minimum weekly wages;

(ii) clause X – Allowances;

(iii) clause X – Overtime penalty rates;

(iv) clause X – Weekend and other penalty rates; and

(iv) clause X – Annual leave loading.

(b) Where a written agreement for an annualised wage agreement is entered into, the agreement must specify:

(i) the annualised wage that is payable;

(ii) which of the provisions of this award will be satisfied by payment of the annualised wage;

(c) If in a pay period or roster cycle an employee works any hours in excess of either of the outer limit amounts specified in the agreement pursuant to clause X.1(b)(iv), such hours will not be covered by the annualised wage and must separately be paid for in accordance with the applicable provisions of this award.

(d) The employer must give the employee a copy of the agreement and keep the agreement as a time and wages record.

(e) The agreement may be terminated:

(i) by the employer or the employee giving 12 months’ notice of termination, in writing, to the other party and the agreement ceasing to operate at the end of the notice period; or

(ii) at any time, by written agreement between the employer and the individual employee.

X.2 Annualised wage not to disadvantage employees

(a) The annualised wage must be no less than the amount the employee would have received under this award for the work performed over the year for which the wage is paid (or if the employment ceases or the agreement terminates earlier, over such lesser period as has been worked).

(b) The employer must each 12 months from the commencement of the annualised wage arrangement or, within any 12 month period upon the termination of employment of the employee or termination of the agreement, calculate the amount of remuneration that would have been payable to the employee under the provisions of this award over the relevant period and compare it to the amount of the annualised wage actually paid to the employee. Where the latter amount is less than the former amount, the employer shall pay the employee the amount of the shortfall within 14 days.

(c) The employer must keep a record of the starting and finishing times, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement agreement for the purpose of undertaking the comparison required by clause X.2(b). This record must be signed by the employee each pay period or roster cycle.

X.3 Base rate of pay for employees on annual salary arrangements