Compliance with annualised salary obligations is crucial for employers to ensure fair and lawful remuneration of their employees. Annualised salaries are a popular method of payment, but employers must take certain steps to ensure compliance. Steps include recording start and end times, doing audits, and informing employees in writing about their yearly salary agreements.
In this article, we will learn what needs to be done to comply the Annualised Salary Obligations.
Annualised salaries overview
When implementing an annualised salary, employers should ensure that:
- the annualised salary does not disadvantage employees;
- a record must be kept of the starting and finishing times, and any unpaid breaks taken
- regular audits should be taken by the employer to determine whether there has been any shortfall in the amount the employee was paid. The annualised wage arrangement must be at least equal to the amount they would have otherwise been entitled to be paid under the Modern Award
Steps employers should take
Employers should determine whether they want to use an annual salary arrangement to remunerate employees. If so, employers should review the annual salary paid to each employee. In addition, employers need to make sure employees know how much overtime and penalty hours an employee is required to work without additional pay.
When reviewing the annual salary, employers need to calculate how many overtime and penalty hours are compensated in a pay period or roster period with the annual salary.
Once an employer is satisfied with the annual salary calculation, employers should notify or agree with the employee in writing about their annualised salary and calculations.
Employers can send employees a letter with the details of the salary calculation or an updated employment contract. However, it is advisable to get the agreement in writing.
A workplace lawyer can provide employers with advice, as well as updated employment agreements.
Keep written records relating to annualised salaries
According to the annualised salary model clauses, you must keep all records of the employee’s annualised salary records in writing for seven years.
The records must include the following:
- amount of annual salary
- method of calculating annual salary
- penalty rates
- starting and ending times, including unpaid breaks taken by employees
All of these requirements relate to general annualised salaries. In addition, each Modern Award has specific requirements that employers must meet. For example, some Modern Awards require that employers and employees enter into a formal, written agreement. This agreement must detail the annualised salary arrangement.
Therefore, you must consider the applicability of the Modern Award to specific requirements. The easiest way to do this is to hire a workplace lawyer to carry out this review on your behalf.
Record start and finish times
Many employees do not record their times and attendance. As a result, it can be difficult for employers to accurately calculate the annualised salary amount. This can make it impossible to compare the salary to the amount the employee should have received.
To ensure an annualised salary arrangement is appropriate and enforceable, employers need to record the employee’s start and finish times. In addition, employers need to record not only the employee’s start and end times but also the employee’s unpaid breaks.
Employers also need to ensure that these records are acknowledged as true records by employees. This should be done on a regular weekly or daily basis.
Employers may wish to consider implementing an automated time-tracking solution. This may relieve the burden of keeping these records manually.
Further advice can be provided by a workplace lawyer.
Conduct an audit to compare the salary versus the entitlements
At the end of 12 months or upon the termination of employment, employers must reconcile the hours worked by an employee.
Then employers must compare the annualised salary paid with the amount the employee should have earned under the applicable Modern Award.
If there is a shortfall in the amount paid to the employee, you must pay the amount to the employee within 14 days of the annual reconciliation. Moreover, an audit must be carried out sooner if an employee resigns or their employment is terminated before 12 months have passed.
A workplace lawyer can provide employers with advice on the best way to audit compliance. They can also confirm whether wages have been accurately paid.
The following steps should be taken to check and ensure compliance with annualised salary arrangements:
Review salaries regularly
Employers should review salaries at least once a year. A more regular review may be required depending on the Modern Award. And the review should be carried out when there has been a change in pay rates under any relevant Awards.
Develop a clear mechanism for paying annual salaries and make sure they are followed
Employers need to verify that they are paying annual salaries under an annualised wage agreement or a set-off clause in a compliant way. This includes ensuring that payroll systems (especially where they are automated) are calculating entitlements accurately
Review records and record-keeping practices to ensure compliance with record-keeping requirements
All record-keeping requirements are critical to ensure that employers can monitor and demonstrate compliance with Modern Awards
If you are an employer that needs legal advice regarding each of the above points, contact a workplace lawyer.
Employers need to be careful of Modern Awards that require entitlements to be paid within a specific pay period. Otherwise, while an annual salary in an employment contract may meet award entitlements over the course of a year, this may still be non-compliant with a Modern Award that requires entitlements to be paid within a specific pay period. This was confirmed by the Court in Annualised WageArrangements  FWCFB 154.
What happens if the salary you are paying is less than the amount owed to the employee under an Award?
An annualised salary shall not be less than the minimum entitlements to which an employee is entitled under the award or registered agreement and the National Employment Standards.
If an employer fails to comply with a Modern Award annualised wage clause, they could face the risk of underpayment claims (also known as wage theft). There are serious financial and reputational risks that may result from claims of underpayment of wages.
Examples of underpayment of wages
The following are examples of where employers have been penalised for underpayment of wages:
- Foxtel underpaid an amount of $4 million to more than 2,000 employees and self-reported the matter to the Fair Work Ombudsman in 2021
- CIMIC (formerly Leighton Contractors) has been accused of not paying hundreds of millions of dollars to workers in its Middle East operations, which demonstrates the reputational risk that companies face by underpaying employees
- a payroll error resulted in an underpayment of $1.8 million by Australia Post to 19,500 former workers
The maximum penalties for breaches of civil penalty provisions are up to $13,320 per breach for an individual and $66,600 per breach for businesses. These may apply to a failure to pay the minimum wage and keep required records of each employee.
If the breach is a “serious contravention,” the maximum penalties increase to $133,200 per breach for individuals and $666,000 per breach for companies.
Further, each State and Territory continues to impose harsher penalties for wage theft. In Queensland for example, wage theft is now a criminal offence punishable by a maximum prison term of 10 years.
If you are an employer and believe you may have underpaid employee wages, you should urgently seek advice from an employment law firm.