The Practical Guide on How to Navigate the Annualised Salary Changes

On 1 March 2020, the Fair Work Commission introduced new annualised salary provisions into various Modern Awards. 

While you can review the changes on the Fair Work website and in each relevant modern award, the documents are often filled with complicated legal jargon, making it challenging to understand whether or not your business is meeting all the compliance requirements.

With the Fair Work Commission clamping down on Australia’s growing underpayment crisis, it’s more important now than ever that companies understand what’s expected of their annualised salary obligations.

To help minimise the confusion, this guide aims to provide you with a comprehensive understanding of everything you need to know about the annualised salary changes to ensure you have maximum compliance.

For example, if an employee is covered by the Pharmacy Award, then the annualised salary arrangement will cover the following entitlements: 

• minimum wages; 
• allowances; 
• overtime rates; 
• penalty rates; and 
• annual leave loading. 

So, instead of paying each entitlement separately, the annualised salary arrangement specifies that the employer will pay their employee one annualised salary that covers all the award entitlements.  

• MA000019: Banking, Finance and Insurance Award
• MA000091: Broadcasting and Recorded Entertainment Award 
• MA000002: Clerks-Private Sector Award 
• MA000023: Contract Call Centres Award 
• MA000028: Horticulture Award
• MA000062: Hydrocarbon Industry (Upstream) Award 
• MA000116: Legal Services Award 
• MA000112: Local Government Industry Award 
• MA000010: Manufacturing and Associated Industries and Occupations Award 
• MA000011: Mining Industry Award 
• MA000072: Oil Refining and Manufacturing Award 
• MA000035: Pastoral Award 
• MA000012: Pharmacy Industry Award 
• MA000015: Rail Industry Award 
• MA000107: Salt Industry Award
• MA000041: Telecommunications Services Award 
• MA000113: Water Industry Award
• MA000044: Wool Storage, Sampling and Testing Award

The Fair Work Commission also plans to update the following awards with new provisions but hasn’t set a timeframe yet: 

• MA000027: Health Professionals and Support Services Award
• MA000009: Hospitality Industry (General) Award 
• MA000050: Marine Towage Award 
• MA000119: Restaurant Industry Award 

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One of the most significant concerns was that some employers did not ensure that the annual salary was high enough to cover all the entitlements (such as reasonable overtime) and that their annualised salary arrangement was placing employees at a disadvantage. 

The new annualised salary changes introduce various processes that employers must follow to ensure that their annualised salary arrangement doesn’t disadvantage their employees. 

The changes are specifically directed at employers in industries where the employees are vulnerable and more likely to be disadvantaged.  That is why the provisions have been introduced in some awards and not others. 

While the wording of the provisions marginally differs between each Modern Award, the following list of requirements will give you a general overview of what is expected of you, as an employer, in terms of the new provisions: 

Advising Your Employees of the Annualised Salary Arrangement

You need to advise your employee, in writing, of the total annualised salary amount that will be paid, which entitlements (such as overtime, allowances and penalty rates) have been included in the amount, and how the total has been calculated. 

Ensure That The Annualised Salary Amount Equals Award Entitlements

You must ensure that the total annualised salary amount is the same (in other words, not less than) as the amount the employee would have received based on receiving the entitlements individually under the Modern Award. 

Where an employee works more than their ordinary hours of work (in other words, they work overtime), they must be paid in terms of the overtime or penalty rates. 

Conduct a 12-Month Audit

After every 12 months (or on termination of employment), you must compare the total annualised salary amount you paid to your employer with the amount that the employee would have received under the Modern Award. Where there is a shortfall (in other words, the employee has received too little pay), you must make payment to the employee within 14 days. 

If, however, your employee resigns or their employment is terminated before having to conduct the 12-month, you must complete the audit earlier. 

Example: 

Larry has been working at a local tech company for the last couple of years and is paid in terms of an annualised salary arrangement. 

In May 2020, he received an employment offer at a different company, which he accepted. Accordingly, he informed his employer, Jacob, that he would be leaving the company at the end of June. 

Since the annualised salary changes came into effect on 1 March 2020, Jacob will have to conduct Larry’s annualised salary audit at the end of June 2020, even though it’s only four months into implementing the changes. 

This is to ensure that Larry is fairly compensated before he leaves to his new job. 

To make the annual comparison, you will have to keep records of when the employee:

• started and finished work; and 
• took unpaid meal breaks. 

Fair Work will also be requiring businesses to maintain these records for at least seven years.

Remember: this list is a general summary of the changes to the annualised salary provisions. Each Modern Award has its own specific provisions regarding an employers obligation.

For example, some Modern Awards require that the employer and employee enter into a formal,  written agreement that details the annualised salary arrangement. 

So, be sure to check the applicable Modern Award for these specific requirements. 

This can be a nightmare for employers to accurately calculate and compare the annualised salary amount with the amount the employee would have received based on the Modern Award’s entitlements. 

With the Fair Work Commission tightening its regulation of annualised salary arrangements, you’ll want to take all the necessary steps to ensure that you are compliant. 

To accurately keep records without the hassle and ensure your compliance with the annualised salary changes, you may want to consider adopting an automated time and attendance solution. 

What Is an Automated Time and Attendance Solution?

The idea behind having an automated solution is to keep track of the working hours, including overtime, and attendance of each employee in your business without the inconvenience of manually keeping and storing paper records. 

So, rather than having to manually check paper timesheets against the annualised salary arrangement (which most employers generally end up doing) every pay cycle (in other words, weekly, fortnightly or monthly), the process will be automated for you. 

This means that you’ll only have to do the comparison once a year and adjust accordingly, as opposed to every pay cycle - making it easier to search records, guaranteeing compliance and ensuring your employees are treated fairly. 

To capture time records for each of your employees, NoahFace offers an automated time and attendance solution that can capture the start and finishing times of their shift and automatically sync it with your payroll system.

How Does NoahFace Work?

NoahFace can be run on an iPad mounted at your point of entry or in a common staff area for staff that regularly attend a fixed place of work. 

Staff simply present themselves in front of the iPad when they arrive at work, and again before leaving.

NoahFace compares their face with known faces using facial recognition technology. If there is a match, it proceeds to the clocking screen. 

The time captured events are then stored in the NoahFace Cloud, where they are securely maintained for seven years. 

This enables you to regularly review each employee's actual hours against their required hours, creating an indisputable and accessible audit trail to comply with the annualised salary changes.

For staff that work from home, on the road, or from multiple workplaces, NoahFace also offers the automated time and attendance solution on an iPhone or Android phone, which allows staff to 

• clock in and out;
• track their tasks; 
• track their jobs; and 
• track their location. 

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Employers must review these records every 12 months to ensure that an employee’s annual salary isn’t less than what they would've been paid over the year if they were paid all the award entitlements for their job.

While you may already have a payroll system in place that can calculate the annualised salary each pay cycle, what you may not have is a cloud payroll system that has automated compliance that allows you to track what the annualised salary amount would have been in terms of the entitlements under the Modern Award. 

Annualised salary employees traditionally don’t clock their hours, so implementing that change using a paper timesheet could become a headache. 

To ensure compliance and minimise the burden of keeping a paper trail, you may want to consider automating the process and making the shift over to NoahFace. 

One of the reasons why we recommend NoahFace is because it’s a completely passive and frictionless way to capture time and attendance. The results are sent straight to a fit for purpose cloud payroll system, and the Modern Award is interpreted into a payslip that meets all the Award’s requirements.

Here’s how NoahFace and cloud payroll will benefit you with the annualised salary changes:

• Time and Attendance
  Employees clock their time using an integrated time and attendance system that syncs all data with your cloud payroll software.

• Live Timesheet Approval
  No more manual entries or paper timesheet approvals. Supervisors and managers approve time and attendance on the go directly on the cloud payroll software.

• Automated Modern Awards Compliance
  A collection of “rules” based on the relevant Modern Award are implemented into your cloud payroll software that automatically calculates pay conditions such as penalties, allowances, shift work, and more.

• Automated Payslips
  Payslips are automatically generated that comply with the Modern Awards.

If your business falls within one of the Modern Awards that needs to adapt to the new annualised salary changes and you’re interested in considering NoahFace to help automate your compliance, get in touch with us today for a free demo.