As part of the 4 yearly review of modern awards, the Fair Work Commission (FWC) has made a decision concerning the annualised salary arrangements contained in the Restaurant Industry Award 2020 and the Hospitability Industry (General) Award 2020.
From 1 September 2022, new annualised wage arrangement rules will be inserted into both awards. These replace the previous annualised salary arrangement provisions in these awards.
This article will outline the specific changes to the Restaurant Industry Award 2020. Please note the changes are slightly different for the Hospitality Award (click here for details regarding the Hospitality Award).
The Restaurant Industry Award 2020 – changes
These new provisions replace changes made quite recently to the Restaurant Industry Award. Previous changes to the annualised salary provisions were made on 20 May 2020 during the process of the award being updated from the Restaurant Industry Award 2010 to the Restaurant Industry Award 2020.
A consistent feature across all versions of the annualised salary provisions of the Award was that employees and employers have been able to agree to arrangements under which employees are paid at least 25% above the applicable weekly rate of pay prescribed by the Award, with nominated entitlements (such as overtime and penalty rates) not paid separately under these arrangements. However, what has changed over time is which provisions could be offset under the arrangements.
Prior to May 2020, certain allowances, overtime payments and penalty rates were not required to be paid separately if the salary arrangement was high enough to absorb these entitlements. From May 2020, while the functionality of the clauses was relatively the same, it introduced limitations of the annualised salary arrangement by only allowing it to absorb penalty rates and overtime.
Thankfully the change to the annualised wage arrangement on 1 September 2022 will help make these arrangements less restrictive. Under the Restaurant Award, an annualised wage arrangement can include payment for:
- minimum award rates for the employee’s classification level
- split shift allowance
- penalty rates
- annual leave loading.
Any award entitlement not included in the list above will have to be paid out separately to the employee in the applicable pay period as it cannot be absorbed by the annualised wage arrangement.
Additional payments may also need to be paid out if the employee works outside their ‘outer limits’. These are rules regarding the maximum number of hours which can be absorbed by the annualised wage arrangement.
Under the Restaurant award, in any roster cycle an annualised wage can only cover up to the following number of hours:
- an average of 18 ordinary hours per week that attract a penalty rate (except for the 10pm – midnight, Monday to Friday penalty rate),
- an average of 12 overtime hours per week.
Any hours worked beyond either of these ‘outer limits’ are not covered by the annualised wage and must be separately paid for at the relevant award rate for the pay period they are worked.
Therefore, as an example, if in a 2 week roster cycle an employee works in excess of 100 hours, additional overtime payments will be required because of the average 12 overtime hours maximum.
This also means that even with an annualised wage you must still monitor employee hours to make sure any additional amounts for any hours worked beyond the ‘outer limits’ are paid in the applicable pay period.
Like the previous arrangement, annualised wage arrangements state that the employee’s annual wage must be at least 25% higher than the employee’s minimum award wage for their classification under the award.
Likewise, an annualised wage arrangement must be agreed upon in writing. At a minimum the written agreement needs to set out:
- the annualised wage
- which award entitlements are satisfied (covered) by the annualised wage (for example, penalty rates, overtime, annual leave loading and split shift allowance)
- the maximum overtime and penalty hours that your employee can be required to work in a roster cycle without being entitled to additional payment (the ‘outer limits’).
For clients of ER Strategies, a template annualised wage arrangement for the Restaurant award can be downloaded via Online HR.
Employers need to also keep a written record of the arrangement as a time and wages record and give their employees a copy of their annualised wage arrangement.
Finally, as a requirement to entering into an annualised wage arrangement, every 12 months (from the date the arrangement commenced) or at termination you must perform a reconciliation to ensure the employee received at least the award minimum pay.
To do this reconciliation you must calculate the employee’s award minimum entitlements for the period (excluding amounts that are not covered by the annualised wage arrangement). If the employee’s annualised wage is equal to or higher than what they would have received under the award, then no back payment is required. Please note that this is not an overpayment, and the employee doesn’t have to pay you back the difference.
If the annualised wage is less than what they should have received under the award, then you must pay the shortfall within 14 days of completing the reconciliation. This process also means you must still record the employee’s start and finish times, days of work, and any unpaid breaks taken to perform the reconciliation.
Please also note that under the Award provisions, only full-time employees can enter into annualised wage arrangements. Previous annualised salary arrangements for Part Time employees will need to be terminated and replaced with either payment according to hours worked or alternatively a common law salary. The benefit to using a common law salary is that you would not be required to abide by the requirements of the annualised wage arrangement (e.g. salary being 25% higher than the award minimum rate or only being able to absorb a certain number of overtime hours). The offsetting condition for a common law salary is that in every pay period you must ensure the employee received payment that is greater than or equal to their award minimum entitlements. Clients should call ER Strategies on 1300 55 66 37 for advice.
If you have any questions regarding these changes, or if you are unsure of what to do, we encourage you to call ER Strategies on 1300 55 66 37.