By Paul Moorhouse -
Snapshot
- A potentially far-reaching judgment of the Federal Court suggests employers cannot use above-award payments across multiple pay periods to offset award entitlements due in respect of a single pay period. The judgment has important implications for employers who pay annualised salary payments to award-covered employees in an attempt to offset fluctuating award entitlements.
- Perram J’s judgment also discusses record-keeping obligations under the Fair Work Regulations 2009 and confirms that, where award-covered employees are paid an above award annualised salary, the employer must still keep records of applicable loadings, penalty rates and allowances, as well as records of overtime hours worked. The judgment also includes important rulings on the interpretation of the General Retail Award.
- This article unpacks the key aspects of this landmark decision and what it means for practitioners and clients in the space.
A recent Federal Court judgment has important implications for employers relying on annualised salaries and set-off clauses to meet fluctuating entitlements of award-covered employees to overtime payments, penalty rates and other award entitlements. In particular, the Court held certain contractual ‘set-off clauses’ that purported to rely upon annualised salary amounts paid over multiple pay periods should be interpreted as meaning that only payments made in respect of a particular pay period could be offset against award entitlements due for that pay period. Moreover, it held that the set-off clauses were not effective to allow above-award payments during one pay period to be offset against award entitlements due for any other pay period. The judgment suggests it will be difficult for employers to ever draft a set-off clause that allows above-award payments made in respect of one pay period to be offset against award entitlements due for any other pay period. Rather, employers must ensure each salary payment is sufficient to meet all award entitlements for that pay period.
Regardless of whether they have set-off clauses in place, employers who have relied upon annual salary arrangements to satisfy all award entitlements may find themselves facing underpayment claims if their salaried employees are award-covered and have fluctuating hours of work and thus fluctuating award entitlements. The issue will be compounded if such employers have not kept records of hours worked, such that section 557C of the Fair Work Act 2009 (‘FW Act’) will mean the employer will bear the onus of disproving underpayment allegations made by their employees.
