Annualised Wage Arrangements

In late January we shared an article advising of upcoming changes to a number of awards and ongoing rollouts to changes in awards. On 12 February 2020, the Fair Work Commission (the Commission) added new rules and changed the existing rules about annualised wage arrangements (also known as annual wage arrangements) to a number of awards as part of a review of modern awards. New rules for annualised salaries for full time employees will apply to 22 modern awards, after the first full pay period finishing on or after 1 March 2020.

There are now five options for employers who want to pay their employees annually.
1. Annualised salaries under some modern awards
2. Set off clauses in employment contracts
3. Individual Flexibility Agreements
4. Guarantee of annual earnings (for high income earners)
5. Enterprise Agreements which contain such arrangements

This article discusses the new arrangements for annualised salaries under some modern awards. If you would like information on any of the other options, of course feel free to contact me at .

Annualised salaries under modern awards
Depending on the award the employee is covered by, the new annual wage arrangements can include entitlements such as minimum wages, any allowances, overtime and penalty rates and leave loading.  Employers must ensure that the annual wage is high enough to cover award entitlements under the annual wage arrangement, an employee cannot be disadvantaged under their previous award entitlements over the year. 

Each award is different, so it is important for employers to check the annual wage arrangement clause and rules for applicable awards.  Employers need to be aware of award classifications, entitlements and agreements between employers and their employees. 

When an employee is on an annual wage it usually includes entitlements for penalty rates and overtime.  Where an employee works extra hours that exceed their annual wage in a pay period or roster, they are entitled to overtime or penalty rates at their award rate. 

The Fair Work Commission has stated that where employers have ‘set off’ clauses, they do not need to comply with the new rules, so long as set-off clauses have met legal requirements (such as ensuring employees are not underpaid or disadvantaged). Clauses should clearly identify which award entitlements are being met, such as leave loading, penalty rates, overtime and allowances.  If an employee will be regularly working overtime and receiving penalty rates, employers may want to review whether an annual wage is still suitable or whether the new annual wage arrangement is more appropriate.

The Fair Work Ombudsman (FWO) has provided a statement that confirms “employers can still pay all employees an annual salary without using annual wage arrangements in an award, as long as it covers all of their minimum entitlements. Employers should consider getting independent advice to make sure they’re paying their employees enough.”  The FWO will provide further guidance to employers as the rollout continues through to May 2020.

Employers need to keep a record and provide employees with a copy of the annual wage arrangement, which includes their annual wage, their entitlements included in the annual wage, how they have calculated the annual wage including any assumptions made, the maximum penalty hours and overtime hours the employee can work per pay period or roster without extra payment. Employers must also record the employee’s hours of work including start and finish times and any unpaid breaks.  Employees must sign or electronically acknowledge the record of hours worked at the end of the pay period or roster.  This is used for annual reconciliations.

If an employer and employee have made an agreement to an annual wage arrangement, either party can end this at any time by written agreement.  Anyone can end an arrangement with 12 months written notice.  The FWC have an Annualised wage arrangement template to assist in developing an annualised wage arrangement.

Employers are obligated to reconcile their employees’ annual wages.  This must happen every 12 months after the arrangement starts, or if the arrangement ends, or when employment ends. 

It is the employer’s responsibility to ensure that their employees have been paid at least the same as they would have been under the award if an employee was not on an annual wage, for all hours worked. If an employee’s annual wage is found to be less than award payments, employers must pay them the difference within 14 days.

You can find more information about these changes on the FWO website or sign up for email updates to get information from the FWO.  

Salary payments and Record-keeping pages.
Annualised salaries   and access determinations  varying each award.

Liability limited by a scheme approved under Professional Standards Legislation.

Disclaimer: We are passionate about helping businesses understand employment law. The content of this article is legal information, and should not be relied upon as legal advice as is not tailored to your circumstances. For advice regarding your specific circumstances, contact Rosa Raco by email or phone03 54996131.
This article is current as at 10.50am on 20th March 2020.

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