Salary employees have traditionally been the easiest employees to administer from a payroll perspective. They receive the same amount each pay unless they start during the period, cease employment or take some leave. It is by far the simplest pay to calculate.
However, Fair Work Modern Awards create the minimum amount required to make a salary employee compliant. And when we talk about modern awards, we begin to talk about complexity.
We see time and time again big business getting this wrong, with many new cases making headlines across the country. This article aims to assist you navigate through this land mine and ensure you maintain compliance. Our goal with this article is to give you the practical advice on how to administer annualised salaries that fall under an award.
1. Determine if you fall under a Modern Award
The new changes came to effect for the first full pay period from 1 March 2020 (not the one that crosses February and March). It forces employers under certain awards to compare the salary to what the underlying award based earnings would have been, and pay any shortfall.
In a lot of cases, many organisations may not have considered if a Modern Award applies at the time of onboarding the employee. If this is you, check out this list from the Fair Work website.
However it isn’t always clear cut as to whether an award applies to you. There’s a range of considerations such as if the employee may suit multiple awards, or maybe what the award describes as being relevant just isn’t quite right. If this applies, make a list of probables and check each award in a section named “Coverage”. Every award has one. This will tell you when they do apply and when they don’t. Here is an example of the Clerks Private Sector Award:
4.1 This award covers employers in the private sector throughout Australia with respect to their employees engaged wholly or principally in clerical work,including administrative duties of a clerical nature,and to those employees. However,the award does not cover:
(a) an employer bound by a modern award that contains clerical classifications; or
(b) an employee excluded from award coverage by the Act.
As a few awards mention someone in a clerical role, you can see there may be a bit of homework before landing on the right Award. Fair Work has an info line which will help you choose the right one.
2. Get your time and attendance system in place
This is perhaps the most crucial step and perhaps the most drastic change that this new requirement brings. It’s highly likely that your salary employee hasn’t had to submit a timesheet before.
Fair Work want a compliant time and attendance record to base the Award recalculation on. This isn’t just a duration, it requires start times, end times and breaks. Don’t be tempted to opt for a paper exercise book. An extra bit of thought at this step saves a lot of disputes down the road.
Operationally, you’re going to have some annoyed salary employees if you don’t make this a fairly frictionless process. A great option is a piece of facial recognition software like NoahFace. This will get your salary employee clocking in and out by looking at an iPad and hitting a big green button. Even your office’s biggest technophobe can handle that.
And best of all, your basing your calculations on a bona fide, undisputed timesheet. A facial recognition time and attendance system can’t be cheated and isn’t at risk of buddy clocking. It’s a great idea to get the employee to sign off their clock events by signing off a report each week or fortnight.
To read more about this option see our Ultimate Guide to Facial Recognition in your Business.
Find the right payroll system to crunch the numbers
Again here it is very tempting to use a spreadsheet to calculate all of those pay conditions. With a good mix of penalty rates, overtime conditions, loading, allowances and shift work penalties, you’ll begin to feel like a computer programmer getting this right with spreadsheet formulas.
There’s many occasions where the payroll software you are currently using may not handle the type of complexity of a modern award without a lot of manual intervention. That module on the end of your accounting system may be great for calculating salaries but a nightmare to handle anything resembling complex payroll.
At Pay Cat, we both help our clients find the right payroll system to suit their needs, but also assist them to build the award complexity into the system they choose. The goal is always to give the client an easy to use system unencumbered by complex manual calculations. At the same time achieve award compliance.
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4. Perform your annual reconciliation
All that precious timesheet data integrated from NoahFace now needs to be crunched and compared to your employees salary. The simplest way is to run fortnightly pay runs. These will gather up those timesheets in batches and let you process them using award compliant pay conditions. Regardless of size, these batches only take minutes to prepare and you can take on many salary employees.
Some of the leading cloud payroll system may even provide a report style analysis of these variances allowing you to skip the batch processing step.
Once calculated, run a gross payroll report shown pay run by pay run, drop it to a spreadsheet and compare each gross earnings figure against the Modern Award version.
You’ll need to do this exercise every year, when the employee leaves, or when they move off an annualised salary arrangement. If you’ve found out they have been underpaid, you have 14 days to pay it back.
Conclusion
Use the right systems will keep you compliant.
Your takeaway message here should be don’t take any shortcuts. A well planned process paired with the right technology will mean your annual reconciliation is both efficient and keeps your business from making tomorrows headlines for all the wrong reasons.
If you would like to discuss your technology options and review your compliance requirements with one of our payroll experts, please get in touch at support@paycat.com.au.