You hire someone on a generous salary. Their contract says the salary covers all hours worked, and everyone is comfortable with the arrangement.
Then someone asks a simple question: Which modern award applies?
That question can change everything. The employee may be entitled to overtime, weekend penalties, annual leave loading or allowances that need to be considered. The salary may still cover those entitlements – but it needs to be tested, not assumed.
For employers, modern award compliance is about more than checking the minimum hourly rate. You need to identify the correct award, apply the right classification and understand how the employee actually works.
This guide, by our Brisbane employment lawyers, explains what modern awards are, how they apply and what employers should check before a payroll issue becomes a claim.
What is a Modern Award?
A modern award is a legally enforceable instrument that sets minimum pay and employment conditions for particular industries and occupations.
Modern awards operate alongside the National Employment Standards under the Fair Work Act 2009 (Cth). They can regulate minimum wages, ordinary hours, rosters, breaks, overtime, penalty rates and allowances.
You cannot avoid an applicable award by leaving it out of an employment contract. Nor can you and the employee simply agree that it will not apply.
Coverage depends primarily on the employer’s industry, the wording of the award and the work the employee actually performs.
Why modern awards catch employers by surprise
Many employers assume they are compliant because they pay above the award rate.
That is a useful starting point, but it is not enough. An employee may earn well above the ordinary hourly rate and still be underpaid once regular overtime, weekend work, public holidays or allowances are included.
The risk often develops gradually. An employee starts working longer hours. A team leader takes on supervisory duties. Someone begins opening the business on Saturdays. The salary stays the same because everyone assumes it already covers the extra work.
Which award applies?
There is no single award that automatically applies to everyone in a business.
Some awards cover particular industries. Others apply to particular occupations across different industries. A business may therefore need to apply more than one award.
For example, a construction business may have tradespeople covered by a construction award while its administrative employees fall under the Clerks – Private Sector Award.
The safest approach is to assess each role by looking at the business, the award’s coverage provisions and the employee’s actual duties.
Classification is where many underpayments begin
Finding the correct award is only the first step. You then need to select the right classification level within that award.
Classifications describe work at different levels of skill, responsibility and complexity. They determine the employee’s minimum rate and may affect other entitlements.
Do not rely only on the original job description. Ask whether the employee’s role has changed. Do they now supervise others, make more complex decisions, train staff or perform higher-level work?
Paying above award does not remove award coverage
Paying above the award minimum does not make the award disappear. The award may still regulate overtime, penalty rates, allowances, breaks, ordinary hours and other conditions.
A broad clause saying the salary covers “all entitlements” may not be enough if the employer cannot explain what was absorbed or prove the salary remained sufficient.
Paying an annual salary under a modern award? Prosper Law can review the contract and compare the salary with the employee’s actual hours, penalties and allowances before a shortfall grows.
Are senior or highly paid employees award-free?
Seniority and salary alone are not decisive. The real question is whether an award is expressed to cover the employee’s duties.
Similarly, earning above the high-income threshold does not automatically remove award coverage. A written guarantee of annual earnings may have a specific legal effect for an eligible employee, but simply paying a high salary is not the same thing.
Where a role sits close to the boundary, document the reasoning behind your decision.
How modern awards interact with the NES
The National Employment Standards provide minimum entitlements such as leave, maximum weekly hours, public holidays, notice and redundancy pay.
Modern awards add industry, or occupation-specific rules to that safety net, including when overtime begins, how rosters operate and what penalties or allowances apply.
An employment contract needs to operate consistently with both. A contract can provide more generous benefits, but it generally cannot reduce an employee’s statutory or award entitlements.
Be careful with annual salaries and flat rates
You can often pay an annual salary or flat rate rather than processing every award entitlement separately.
However, payroll simplicity does not remove the underlying obligation. The salary still needs to cover what the employee would otherwise have received under the award.
For example, if a salary was calculated on the assumption of two overtime hours each week but the employee regularly works five, the original amount may no longer be sufficient.
The more variable the employee’s hours, the more important accurate records become.
The danger of a silent employment contract
A contract that says nothing about the applicable award, classification or absorbed entitlements can create uncertainty.
A stronger contract usually identifies the relevant award and classification, explains the purpose of the salary and specifies which monetary entitlements are included.
But drafting alone is not enough. A carefully written salary clause will not protect an employer if the employee’s actual hours cause the salary to fall below their award entitlement. The contract, payroll system and workplace practices must align.
Learn more about employment contract clauses in our article.
A practical example
Consider a marketing coordinator employed by a wholesale business. The employee is paid an annual salary above the award base rate, and the employer assumes the role is award-free.
In practice, the employee spends much of the week preparing correspondence, entering data, coordinating invoices and providing administrative support. They also work late during product launches.
Those duties may fall within an award classification that was never considered. If an award applies, the employer may need to account for overtime, leave loading and other entitlements. The salary may cover the total – but that needs to be checked.
Many award issues begin this way. The problem is not always the pay rate. It is the assumption about the work.
What can happen when an employer gets the award wrong?
An incorrect award or classification can lead to back pay, interest, penalties and legal costs.
Underpayment claims may extend back up to six years. Where the same mistake affects several employees, the liability can grow quickly.
Intentional underpayment can also attract serious consequences. Even where the problem began as an honest error, employers should act promptly once it is identified.
Since 1 January 2025, intentional underpayment of wages or entitlements can also constitute a criminal offence.
The consequences are not only financial. An underpayment can affect employee trust, management time, business sales, tenders and the organisation’s reputation.
How to check modern award compliance
Start by grouping employees according to the work they actually perform.
Identify the possible industry and occupational awards, then read the coverage and exclusion provisions carefully. Once you find the likely award, compare each employee’s duties with the classification descriptions.
Then test their pay against the way they really work.
That means looking beyond the base rate and considering overtime, penalties, allowances, leave loading and any progression rules.
You do not need to memorise every clause of every award. But for each employee, you should be able to answer four questions:
- Which award applies?
- Which classification applies?
- What would the employee receive under the award for the hours they work?
- How does your payroll arrangement satisfy those entitlements?
If you cannot answer one of those questions, there may be a gap worth investigating.
Unsure which award applies?
Prosper Law assists employers with modern award coverage, classifications, annual salary arrangements, employment contracts and payroll compliance reviews.
Frequently Asked Questions
Can you pay a flat rate or annual salary?
You can often pay an employee a flat rate or annualised salary rather than processing every award entitlement as a separate line item.
But simplicity in payroll does not remove the underlying obligation. The employee must still receive at least their lawful entitlement.
Depending on the applicable award and arrangement, the contract or written salary terms may need to identify which entitlements are included in the salary. The more variable the employee’s hours, the more important accurate records become.
Can an employee agree not to be covered by an award?
No. An employer and employee cannot simply opt out of award coverage by agreement.
They may agree to contractual terms that are more beneficial or use a lawful salary arrangement to satisfy particular award payments, but they cannot remove the award merely by stating that it does not apply.
Does paying above award mean I do not have to pay overtime?
Not necessarily. You may be able to use an above-award salary to satisfy overtime and other monetary entitlements, but the arrangement must be legally effective and the employee must receive enough to cover what the award requires.
You should identify the entitlements included and compare the salary with the employee’s actual working pattern.
Is every manager award-free?
No. A manager may still be award-covered if their duties fall within an award’s coverage and classifications. Look at what the employee does, not just their title.
Is an employee award-free once they earn more than the high-income theshold?
No. The $190,100 high-income threshold applies from 1 July 2026 to 30 June 2027, but exceeding it does not automatically remove award coverage.
A written guarantee of annual earnings may have a particular legal effect for an eligible employee, but simply paying a salary above the threshold is not the same thing.
Are independent contractors covered by modern awards?
Genuine independent contractors are generally not covered as employees under modern awards.
However, calling someone a contractor does not determine their legal status. If the arrangement is actually one of employment, award entitlements and other employee protections may apply.
How far back can an employee claim an underpayment?
Underpayment claims may generally extend back up to six years, depending on the nature and timing of the claim.
This makes accurate time, wage and classification records particularly important.
About the Author
Farrah Motley
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