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  • Changes to key modern awards effective from 1 March 2020 introduce prescriptive requirements for ‘annualised wage arrangements’.
  • The Fair Work Commission recognises common law annualised salary clauses as an alternative to an ‘annualised wage arrangement’ under the award.
  • Record keeping under both ‘annualised wage arrangements’ and common law annualised salaries is an area of focus.

In employment circles, 2019 was the year of the underpayment. We witnessed a regular stream of underpayment claims affecting some of Australia’s most high-profile employers – from iconic Australian brands and large employers to celebrity chefs.

The ensuing examination of the apparent increase in underpayment claims often pointed to the complexity of Australia’s workplace relations system. Modern awards were seen as the main culprit. They apply to different occupations and industries, and contain different wages for different employees, ordinary hours and hence overtime provisions, penalty rates, loadings and allowances.

For many employers to whom an award applied, the simplest way to deal with the different award obligations was to pay an annualised salary expressed to compensate for the award entitlements that may arise. From an employer’s perspective, paying a predetermined amount annually to compensate for these irregular entitlements has the perceived benefit of administrative ease, and was seen by many to support a modern flexible working culture free from ‘clock watching’. From an employee’s perspective there were also benefits. An annualised salary was meant to pay more than the minimum under the award, typically with a ‘surplus’ or ‘buffer’. A predetermined annual salary also provides an employee with income stability where hours of work fluctuate.

In this context, and as part of its four-yearly review of modern awards, the Fair Work Commission (‘FWC’) has updated and in some cases introduced new clauses relating to annualised salaries – now called ‘annualised wage arrangements’ – to provide greater certainty and accountability to the annualised salary provisions of modern awards.

These changes, which take effect on 1 March 2020, will initially impact 22 modern awards including awards such as the Clerks – Private Sector Award 2010 that covers a wide range of clerical, administrative and office staff; the Banking, Finance and Insurance Industry Award 2010 that covers clerical, office and middle management staff in the banking, finance and insurance industry; and the Legal Services Award 2010 that covers clerks, graduates and clerical employees in the legal services industry.

The changes have resulted in a significant divergence of views as to what steps, if any, need to be taken by employers to whom these awards apply. The changes will not affect employers and employees covered by an enterprise agreement or who have entered into a Guarantee of Annual Earnings or an Individual Flexibility Agreement that varied relevant terms.

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