Current Annual Salary Arrangements
It is notable that there are a number of modern awards which already incorporate rules regarding paying employees an annualised salary. The rules for doing so vary significantly between awards, but the majority include a requirement to make the employees aware of which aspects of the award the annualised salary directly impacts (i.e. the annual leave loading, overtime, etc.). The awards generally incorporate rules which, broadly interpreted, claim that that the annual salary must be equivalent to cover all entitlements that the employee would have been entitled to had they been paid on an hourly basis.
Changes to Annual Salary Arrangements
The impact of the changes are varied, and depend on the specific award. There are however several key features across the impacted awards, which all awards with annual salary arrangement provisions will include. The following is a brief summary of the key changes:
- A requirement for some individual agreement to be facilitated with the relevant employee, before any annualised salary arrangement is initiated, in all situations where the employee works highly varied hours.
- The arrangement may be concluded by either party at annual intervals.
- All such arrangements must be in writing for all annualised salary arrangements.
- The annualised salary should not result in the employee receiving less than they would have received had the terms of the modern award been applied in the ordinary way, and a clause must be included in their contract to this effect.
The Fair Work Commission has identified several ways to achieve this, including:
- An increment included over the base or minimum rate of pay used to calculate the annualised salary. This must also incorporate a clause referring to the outlier limit of overtime, or penalty rate hours which are compensated through the increment. This must be identifiable in the contract, and the method of calculation must be in the contract.
- A requirement to complete an annual salary review, and record-keeping of overtime hours
It is important to remember that the annual salary arrangements must only be arranged with full-time employees, though there may be scope for some variation under certain circumstances – for example, some pragmatic and lawful application to part-time employees.