An annual salary and an annualised wage may sound similar, but for award-covered employees the distinction is important. Keep reading to find out more, as well as access a downloadable, helpful infographic to share with your team, or just to keep handy.
Annual Salary
An annual salary is usually agreed in an employment contract. It may compensate an employee for ordinary hours as well as specified award entitlements such as overtime, penalty rates, allowances or annual leave loading. The contract should clearly identify which entitlements the salary is intended to cover. Importantly, paying an employee well above the award over the course of a year does not necessarily protect an employer from an underpayment.
Annualised Wage Arrangement
An annualised wage arrangement operates under specific provisions in a modern award or enterprise agreement.
Depending on the applicable instrument, employers may need to:
- document how the annualised wage was calculated;
- identify the award entitlements included;
- specify limits on overtime or penality hours;
- record hours work; and
- conduct regular reconciliations and pay any shortfall
Why This Matters
The Federal Court’s Woolworths and Coles decision significantly changed the risk associated with contractual salary arrangements. For award-covered employees, employers generally cannot use an overpayment in one pay period to offset an underpayment in another. The salary paid for each pay period must be sufficient to meet the award obligations arising in the same period. This means employers using annual salaries may need to closely monitor hours, overtime, penalty rates and allowances each pay cycle.
Key Takeaway For Employers
If you employ award-covered salaried employees, now is a good time to review:
- the employee’s award and classification;
- what the salary clause actually covers;
- hours and attendance records;
- whether the salary satisfies award entitlements each pay period; and
- whether an annual salary remains the best arrangement.
A salary does not remove award obligations. Employers still need to demonstrate employees have received their minimum entitlements.
Need help reviewing your salary arrangements? Our team can assist with award coverage, classifications, employment contracts and payroll compliance.
Need Advice?
ER Strategies are experts in employment compliance and can assist you in managing your employment compliance responsibilities. To discuss your obligations and assistance we can provide, get in touch with us at 1300 55 66 37, or click the button below.
