What are Annualised Wage Arrangements?
Modern Awards can have the option of paying by an annualised wage arrangement which allows employers to pay a fixed amount per week to satisfy all entitlements prescribed under the Award.
What do they involve?
Rather than paying each entitlement separately, they can be consolidated within an annualised wage arrangement where an employer will pay an employee a salary that covers all Award entitlements. However, the agreement cannot be less than what that employee would have received under their minimum award entitlements.
Annualised wage arrangements can cover:
- Minimum weekly wages under the Award;
- Annual leave loading.
Annualised wage arrangements have changed throughout the years. A 2018 decision from the Fair Work Commission, stated that 3 out of the 19 Awards looked at, had provisions outlining that it was a requirement for any annualised wage arrangement to be a minimum percentage above the relevant base weekly wage in the Award. This ensured that no employees would be disadvantaged.
However, in later judgements, the Commission outlined that there was no reasonable percentage threshold that could guarantee that the employee would never be worse off, and limitations were required. This then stemmed the ‘3 Step Mechanism’ to ensure employees were not disadvantaged:
- Minimum increase above the rate of pay prescribed in annual wage clause.
- Requirement that the arrangement must identify how the annual wage is calculated.
- Requirement that the employer undertakes annual reconciliations or reviews in line with the Award.
What are the specific changes to the Hospitality and Restaurant Industry Awards?
Due to the extreme work hours and historical underpayments to hospitality and restaurant workers, the Commission conducted a review, and the following was recommended.
Despite requiring the annualised wage to be at least 125% of their relevant base weekly rate, where an employee is required to work at or near the outer limits specified over a 12-month period, the minimum uplift of 25 per cent is believed by the Commission to be insufficient compensation.
The proposal for outer limits in earlier decisions was to ensure that annualised wage arrangements were not exploited where employees would be required to work more unsociable or additional hours.
Therefore, employees paid via annualised wage arrangements under clause 24 of the Hospitality Award or clause 20 of the Restaurant Industry Award will also need to be paid an additional amount when an employee works in excess of the “outer limits” below:
- 12 overtime hours per week averaged over the roster cycle; and/or
- 18 penalty hours per week averaged over the roster cycle (excluding 7pm to midnight in the Hospitality Award and 10pm to midnight in the Restaurant Award).
Other protections included in these updated annualised wage arrangements state:
- employers must conduct a reconciliation either every 12 months or at the employee’s termination to ensure that, the employee has earned no less than their minimum award entitlements;
- the annualised wage arrangement must be recorded in a written agreement.
This Decision does not apply to managerial staff under the Hospitality Industry Award, who are subject to a much less prescriptive annualised wage conditions outlined under clause 25.
Key takeaways for employers
As of 1 September 2022 employers will need to alter their salaried contracts for employees under the Hospitality and Restaurant Industry Awards to ensure that they comply with the award changes. Employers will also need to be aware of when employees covered under annualised salaries work outside their “outer limits” of hours and pay the relevant additional amounts.
For our clients template contracts with applicable annualised wage clauses are available for both full and part time employees, under the resources available in our Online HR portal.
Employers should review the determinations under their relevant award to fully understand their obligations when paying employees under an annualised wage arrangement: