Australian employers prepare for annualized salaries

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salary

Employers covered by the Banking, Finance and Insurance Award 2010 should begin to prepare for changes to the requirements regarding the payment of annualized salaries to award-covered employees, coming into effect from 1 March 2020.

As part of the Fair Work Commission’s award review, the annualized salary provisions of a number of awards have been reviewed. Relevant for employers in the banking, finance and insurance industries, it has now been confirmed that one of the awards to have its annualized salary provisions amended is the Banking, Finance and Insurance Award 2010. Currently, this award allows an employer to pay an employee annual salary in satisfaction of the following award provisions:

  1. Minimum wages (clause 13);
  2. Allowances (clause 18);
  3. Overtime and penalty rates (clause 23); and
  4. Annual leave loading (clause 24.3).

In order to do so, the employer needs only to:

  1. Ensure that the salary paid is, at least, sufficient to compensate the employee in respect of the entitlements arising under those provisions if they were paid separately; and
  2. Advise the employee in writing of the annual salary that is payable, and which of the award provisions are satisfied by the salary.

From 1 March 2020, the requirements that will apply in respect of annualized salaries will change, with a significant impact on employers. By way of summary, the changes are as follows.

(1) More onerous notification requirement. In addition to the current requirement that an employer advise the employee in writing of the annualized salary payable (i.e., its amount) and which provisions of the award will be satisfied by the annualized salary, there will be new requirements to advise the employee of:

  • The method by which the annualized wage has been calculated, including specification of each separate component of the annualized wage and any overtime or penalty assumptions used in the calculation; and
  • The outer limit of ordinary hours and overtime hours the employee may be required to work without being entitled to any payments in addition to the annualized salary (and to keep records in relation to this).

(2) Specific requirement to pay for hours worked in excess of “outer limits” set by the arrangement. If hours are worked outside the outer limits set by the arrangement, in the manner set out at 1(b) above, there will be a specific requirement to make additional payments to employees in respect of those hours.

(3) More onerous reconciliation process. There is currently a requirement to review annualized salary arrangements every 12 months to ensure employees are being appropriately compensated. The new provisions will introduce a more onerous reconciliation process whereby every 12 months (or following termination of employment), the employer must calculate the amount that would have been payable to the employee under the award over the preceding 12-month period and compare that amount to the amount paid by way of the annualized salary. Any shortfall must be paid within 14 days.

(4) Requirement for employee acknowledgment of certain records. For the purpose of conducting the reconciliation set out at (3) above, an employer must keep a record of the starting and finishing times of work, and any unpaid breaks taken, of each employee. The record must be signed by the employee, or acknowledged as correct in writing (including electronically), each pay period or roster cycle.

The most immediate impacts are that clients will need to ensure that:

  • By 1 March 2020, the notification requirements set out at (1) above have been complied with; and
  • From no later than 1 March 2020, records of the type set out at (4) above are kept and acknowledged by employees each pay period.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by emailing Danian Zhang at danian.zhang@bakermckenzie.com.