Key changes to annualised salaries covered by modern awards

Business Insights

There have been some key changes to annualised salaries covered by modern awards including the Pastoral Award.

From 1 March 2020, employers who currently pay annualised salaries to employees covered by modern awards must comply with new notification, record-keeping and reconciliation provisions.

These changes apply to any award that contain annualised salary clauses, including the Pastoral Award (2010). 

Background annualised salaries

It is common practice for many farmers to pay their employees an “all-inclusive” annualised rate of pay which covers base wage, overtime, penalty rates, and loadings.  This salary is usually outlined in the employment contract at the commencement of employment and employers are required to ensure the employment contract complies with award conditions at all times.

A number of recent high-profile cases have shone the spotlight on employers and their administrative practices.  The Fair Work Commission as part of its regular review of awards has identified annualised salaries as an area of risk and will now implement a number of changes from 1 March 2020 that aim to provide more transparency around the calculation of the annualised rate.

What are the changes?

The modern awards impacted by these changes are separated into three separate categories.  The Pastoral Award 2010 is classified as a category 2 award.  This category covers employees who work highly variable hours or significant ordinary hours which may attract a penalty rate. 

Under the Pastoral Award 2010, from 1 March 2020 employers will be required to:

  • Record in an employment contract the “outer limits” on the number of overtime hours or other penalty-rate hours which are to be taken as paid by the annualised wage arrangement
  • Pay an employee for any hours worked which exceed those “outer limits” in accordance with the relevant provisions of the award
  • Keep a record of the start and finish times including any unpaid break times for each employee and have them sign or acknowledge the accuracy of the record (including by electronic means) each pay cycle
  • Employers must undertake an annual reconciliation every 12 months from commencement of the annualised salary arrangement to ensure the employee was paid in accordance with the award.  Any shortfalls must be paid to the employee within 14 days

What should an employer do now?modern awards

  • Update employment contracts to record the method by which the annualised wage has been calculated
  • Implement a calculation method for any annualised salary in writing, taking into account the ordinary hours worked by an employee, likely penalty rates and overtime which the employee would be entitled to
  • Make necessary amendments to employment contracts to comply with the Pastoral Award 2010
  • Ensure systems are in place to keep accurate and detailed records of work in order to conduct annual reconciliations
  • Conduct annual reconciliations comparing the amount paid as annualised salary and the amount that would have been payable had the award provisions been applied in the ordinary way

What are the penalties for non-compliance? 

Failure to comply will amount to a breach of a modern award – often referred to as “wage theft” - and will attract civil penalties under the Fair Work Act 2009 (Cth).

Where to go for help?

This article is provided as general information only. Please seek further advice on how it will apply to your circumstances. If you have any questions about the upcoming changes, contact your local RSM office