12 February and 1 March 2020 saw new rules for annual wage arrangements come into effect for several awards. However, despite these new rules applying to businesses across a range of industries, many organisations have still not yet formulated an approach to meeting the new regulations.
This article aims to assist businesses in formulating a plan to meet the new annualised salaries requirements.
Firstly, it is important to acknowledge that no sole role within the organisation is responsible for resolving the requirements to meet these new requirements; instead, a whole of business approach is required which may be one of the reasons why so many businesses remain non-compliant in meeting the new rules.
A complete understanding of the requirements for the new annualised salaries obligations of employers is generally held across the knowledge base of the business’s administration. Whilst Payroll and HR are often targeted as those expected to resolve the matter, a firm understanding of why change is necessary for other departments such as Operations and IT can only be driven by the leadership. The subsections below are designed to assist business owners in gaining a strong understanding of the situation and providing guidance on options to resolve compliance risks.
What is an annualised wage/salary?
Most employees within Australia perform work according to an occupation or nature of duties which has a prevailing payment structure of how that staff member should legally be paid for said work performed. These are the Awards as stated on the Fair Work website. Within some of these awards are provisions or mechanisms that allow for some form of annualised salary to be paid to a full-time employee instead of the more traditional award approach of paying a flat wage, plus various additional amounts such as overtime, penalties, allowances etc. These provisions and mechanisms are designed to improve the efficiency of the payroll process, offer a means of offering competitive pay and allow businesses to forecast labour costs with simplicity. They also can negate the need to negotiate Enterprise Bargaining Agreements which can take extended periods of time to come to a consensus and are costly to bring into place.
Why have the rules changed?
The new rules prevent employees from being unfairly remunerated for work under an annualised salary as opposed to the award. Once in place, any employee on an annualised salary whose hours of work and subsequent earnings and entitlements will quality checked against the award to make sure annual earnings meet the Better Off Overall Test (BOOT).
What are the changes?
Under the new clauses, employers who elect to pay an annual salary that is inclusive of overtime, penalty rates, allowances and loadings will need to:
- Detail to the employee how the annual salary payable to them is calculated with respect to the award and how the annualised amount satisfies the award including any overtime or penalty assumptions;
- Specify the outer limit of ordinary hours that would attract a penalty rate an employee may be required to work each pay period or roster cycle;
- Set out the out limit of overtime hours an employee may be required to work each pay period or roster cycle;
- Pay employee for excess hours worked at the award rates;
- Conduct reconciliation of hours worked every 12 months (and on termination of employment) to compare the annual salaries paid to the amount which would have been earned under the relevant modern award;
- Pay the shortfall amount to the employee within 14 days of the annual reconciliation; and
- Keep a record of each employee’s start and finish times and any unpaid breaks.
- Have employees acknowledge the record of hours they’ve worked is correct by signing in writing or electronically at the end of every pay period or roster cycle.
Which businesses are affected?
Organisations that pay staff salaries for work performed which would otherwise attract wages under the following awards are included in the new rules.
From the 12th of February 2020
- Horticulture Award 2010
- Pastoral Award 2010
From the 1st of March 2020
- Banking, Finance and Insurance Award 2020
- Broadcasting, Recorded Entertainment and Cinemas Award 2010
- Clerks – Private Sector Award 2020
- Contract Call Centres Award 2020
- Hydrocarbons Industry (Upstream) Award 2020
- Legal Services Award 2020
- Local Government Industry Award 2020
- Manufacturing and Associated Industries and Occupations Award 2020
- Mining Industry Award 2020
- Oil Refining and Manufacturing Award 2020
- Pharmacy Industry Award 2020
- Rail Industry Award 2020
- Salt Industry Award 2010
- Telecommunication Services Award 2010
- Water Industry Award 2020
- Wool Storage, Sampling and Testing Award 2010
The new rules start from the full pay period after the commencement date.
The Fair Work Commission also intends to update the following awards with new rules but has not yet set a commencement date.
- Health Professionals and Support Services Award 2020
- Hospitality Industry (General) Award 2020
- Marine Towage Award 2020
- Restaurant Industry Award 2020
Which employees are not included within the new rules?
This article is specifically directed towards the new requirements for annualised salaries within the stated awards. Specifically, the annualised salaries option is only available to full-time employees, thus all casual and part-time employees are exempt, though the solutions utilised to pay part-time and casual employees according to their relevant award may be valuable as part of the solution to the new changes.
Employees may be paid under different conditions to the modern awards:
Common law contracts
The changes affecting the above-named Awards do not change the fact that employers can opt to pay an annualised salary through a common law contract instead. Award entitlements can be “set off” by payment of an annual salary as recorded in a common-law employment contract. However, this does not mean that employers should not record an employee’s hours worked.
Individual flexibility agreements (IFA).
Employers can agree with individual employees to vary the application of terms in the modern award through an IFA. Once again, certain requirements from the new annualised salaries rules should also be adhered to as a matter of best practice in reducing potential underpayment risks and determining employment costs to the business in comparison to the award.
Enterprise Bargaining Agreements
Employers and employee can bargain as a collective to agree on an enterprise agreement which contains terms and conditions of employment that are specific to the employer’s business and nature of work performed. The option to elect an annualised salary within this EBA may also be negotiated. An underpinning modern award, and any subsequent annualised salary requirements within that award, will not apply under this option.
Guarantee of high-income threshold for annual earnings
Employees who are guaranteed to receive above the high-income threshold (currently $148,700) in a 12-month period are currently exempt.
Employees paid in accordance with award conditions
For staff who do not receive an annualised wage but rather are paid in accordance with the awards conditions, such as overtime and penalty rates as they are incurred, the new rules are not relevant. Solutions for the requirements of payroll accuracy for these staff such as timeclock solutions and award interpretation tools may be of assistance in meeting the new provisions.
Where does responsibility lie?
- Directors and CEOs
Leadership will want to be certain the organisation is risk-free. Queensland and Victoria have now criminalised intentional underpayments, and extensive penalties apply to incorrectly paying employees and failing to keep the appropriate records. There is also discussion at the federal level for the criminalisation of wage-theft. Beyond these matters, simple mistakes do occur, and the reputation of the company is at hand, both that of staff engagement with the organisation and leadership along with the public through embarrassing media publications.
Ultimately the leadership must address the risks associated with their payroll department. Internally the matter of payroll compliance needs to be raised and assurances received from the individuals responsible for the data inputs that constitute payroll data. Considerations should include external payroll health checks, risk assessments and potentially, audits to determine any liabilities. Seeking the assistance of an organisation with payroll expertise, such as the Australian Payroll Association, can not only bring peace of mind that auditable data is compliant and accurate but also provide insights which could vastly improve the payroll process to industry gold-standard procedures and systems.
- General Counsel, Employment Lawyers, HR Managers and Chief People Officers
A review will need to be performed to assess all staff on an annualized wage to determine if the nature of that staff members work falls under the prevailing awards listed by Fair Work as being affected by the new rules. If there are staff effected, a determination on which strategy the organisation will take to remain compliant needs to be formulated. The addition of clocking solutions to the workplace and the training of staff on the new protocols needs to be communicated effectively and transparently as a matter of change management to uphold strong employee engagement and to achieve positive adoption models to the new processes.
Factors that should be taken into consideration are the cost of change and the review of the status quo. How are current payroll processes? When was the last time the payroll process, governance, system setup and potential improvements been audited? Technology is advancing at such a rapid pace; one only needs to consider when they last upgraded their person tech such as their mobile phone to acknowledge that improved software and solutions arrive on the market each year.
If it is deemed that change is required to meet the new obligations for annualised wages, perhaps now is the time to consider process improvement, whether that be internal or seeking the services of professional services firms in; outsourced processing, educational material, technology solutions and consultation.
- Payroll Managers
Once an approach has been selected, it will be your job to implement the process. If the approach is to reconcile against the award, you’ll need timekeeping solutions and an award interpretation tool. There are many technology platforms that can assist with these requirements and remove the risks and inefficiencies associated with the manual interpretation of data.
Another consideration is your own personal development. Membership to centres of excellence for the promotion of payroll education and continues improvement, such as the Australian Payroll Association, will assist payroll managers in meeting the challenge of awareness of change. The fluid world of payroll compliance where multiple jurisdictions and multiple levels of government raise the complexity of maintaining contemporary approaches to the role can be consolidated and simplified to a single knowledge hub. Access to industry insights and updates will help you fulfil your responsibilities in advance of the challenge of enforceable deadlines.
- CTO, CIO, IT Managers
Should there be a transition in processes and technology, the tech stack will ultimately affect your position. The sensitive nature of payroll data needs to be taken into consideration for not only the internal IT data security policies but also those of government to remain compliant but also best practise standards.
Most modern technology providers have developed their products in alignment with market demands and keep compliance in front of mind. True cloud-based solutions are utilising onshore data storage, 2FA, SSO and data encryption as a standard. For growing and larger organisations, integration strategies should be considered to streamline data flow processes.