Australian Currency

Every 4 years the Fair Work Commission conducts a review of modern awards. As a result of the latest review, new clauses regarding annualised salary arrangements have been inserted into several awards, including the Banking, Finance and Insurance Award 2020 (the Award), which covers employees in financial planning profession.

Effective 1 March 2020, employers who pay annualised salaries to employees must comply with new notification, record-keeping and reconciliation requirements.

The Purpose of the Changes

A number of recent public cases of employers being caught out underpaying their staff, often by way of annualised salaries in modern awards, (including the likes of Woolworths and Made Establishment run by George Calombaris) has brought into question whether they are effective in providing a fair and relevant minimum safety net of terms and conditions for employees. Consequently, the intent of the changes is to ensure that employees are not disadvantaged by annualised salary agreements.

What are the Changes?

The Banking, Finance and Insurance Award 2020 has been altered to include:

  • Notification to Employees: The employer must advise the employees in writing of the:
    • annualised salary payable to them;
    • award provisions which are satisfied by payment of the annualised salary;
    • method of calculating the annualised salary;
    • outer limit of ordinary hours each pay cycle that would attract payment of penalty rates; and
    • outer limit of overtime hours the employee may be required to work in a pay cycle without an entitlement to additional pay.
  • Payment for hours worked in excess of the identified outer limits: In addition to the annualised salary, the employer must pay employees, in accordance with award requirements in respect to overtime or penalty rates, for any hours worked in a pay cycle which exceeds the identified outer limit.
  • Annual Reconciliations: Each 12 months from the commencement of the annualised salary arrangement (or upon the employees’ termination), the employer must calculate the remuneration that would have been owed to the employee under the award, based on their actual hours of work, and compare the annualised salary that has actually been paid. Where there is any shortfall, the employer must pay the outstanding amount within 14 days.
  • Record Keeping: Employers must keep a record of start and finish times of all employees under an annualised salary arrangement, as well as any unpaid breaks. The employees must sign off or acknowledge in writing that the record for the nominated pay period is correct.
    How do I know if my employees are covered?

The Banking, Finance and Insurance Award 2020, covers employers throughout Australia who are engaged in the banking, finance and insurance industry. All employees in a financial planning practice, including financial planners who are specifically named in the Award, are likely to be covered, irrespective of any employment contracts you may have in place.

What do I need to do to comply with my legislative obligations?

In the first instance you need to determine those employees covered by the Award and the level their role is classified. Employers should then ensure that they:

  1. Implement a calculation method for any annualised salary in writing. This should include consideration of the number of ordinary hours worked by an employee and likely overtime which employees would be entitled to.
  2. Keep accurate and detailed records of hours of work in order to conduct annual reconciliations. This will include keeping records of overtime hours where an annualised salary arrangement displaces the award requirements for payment of such hours.
  3. Conduct annual reconciliations comparing the amount paid by way of the annualised salary and the amount that would have been payable had the award provisions been applied in the ordinary way. If any shortfalls are identified, these should be paid within 14 days.
  4. If required, issue new contracts to staff who will be affected by the new annualised salary provisions.

Are there any other options available?

For those employers who want to pay an annualised salary without entering an annualised wage arrangement, there are several options available that you may wish to consider. These are:

  • Common law set off clauses. Award entitlements can be ‘set off’ by payment of an annual salary as recorded in a common law employment contract; or
  • Individual flexibility agreements (IFA). Employers can agree with individual employees to vary the application of terms in the modern award through an IFA;
  • Guarantee of annual earnings. For relatively high income employees, employers can enter into a ‘guarantee of annual earnings’ by guaranteeing payment of at least the high income threshold (currently $148,700) for 12 mths.

What happens if I don’t comply?

Failure to comply with the annualised salary clause may result in underpayment claims and associated penalties for breaching the Award. Currently, the cost per breach is $12,600 for each individual, director or manager named, and $63,000 for the employing entity.

About the Author

Christine Bau is the founder of People Focused, a HR Consulting firm that specialises in working with the Financial Planning sector. For assistance meeting your legislative requirements, contact Christine on 0434 534 747 or christine@peoplefocused.com.au This article was produced by People Focused. It is intended to provide general information only in summary format. It does not constitute legal advice and should not be relied on as such.