Effect of the Annualised Wage Arrangements decision on existing contracts

What does the Annualised Wage Arrangements decision mean for me? I already have a set-off clause in my contract, do I need to change anything?

As part of the four-yearly review of modern awards, the Fair Work Commission (FWC) has determined that one of three model annualised wage clauses will be inserted into approximately 20 modern awards. These awards include the Clerks – Private Sector Award and the Manufacturing and Associated Industries and Occupations Award.

The full list of awards can be found in Ai Group Member Advice Nat 013/19. The annualised salary clauses in some awards only apply to particular classifications or work streams.

Model clauses

The three model clauses implement more onerous obligations on employers, in particular:

• Requiring employers to advise employees of the award provisions that are satisfied by the annualised wage; the method by which the annualised wage has been calculated, including specification of each component of the annualised wage and any overtime or penalty assumptions included; the outer limit of ordinary hours that would attract award penalty payments; and the outer limit of overtime hours the employee may be required to work without being entitled to an additional payment.
• Requiring employers at the end of each 12 months from the commencement of the annualised wage arrangement (or at the employee's termination) to compare the annualised wage paid against the remuneration that would have been payable to the employee under the award. Where there is any shortfall, the employer must pay the outstanding amount within 14 days.
• Requiring employers to keep records of the starting and finishing times and unpaid meal breaks of each employee, for the purpose of complying with the comparison obligation described above.

The practical effect of this change is that employers who wish to pay an employee in accordance with an annualised wage arrangement provision in an award will be required to adhere to a number of new obligations in relation to notification, record keeping and wage reconciliation obligations.

These changes are targeted towards ensuring that employees are not disadvantaged by annualised wage arrangements. The new annualised wage arrangements clauses are intended to be operative from 1 March 2020.

It is important to note that the FWC Full Bench has confirmed that the new annualised wage arrangement clauses do not prevent an employer and employee implementing an annual salary arrangement through the use of an appropriate set-off clause in an employee’s employment contract, rather than through the relevant award clause. The Full Bench stated in the Annualised Wage Arrangements Decision [2019] FWCFB 4368 that “…the model clauses do not seek to invalidate or regulate any such contractual arrangements.”

Accordingly, there is nothing to force an employer to utilise the annualised wage arrangement provisions in a particular award. An employer and an employee could enter into a separate contractual annualised salary arrangement through an appropriate set-off clause in a common law employment contract.

However, the record-keeping requirements in the Fair Work Act 2009 and the Fair Work Regulations 2009 would still need to be complied with, including the requirement in Regulation 3.34 that if a penalty rate or loading must be paid for overtime hours worked by an employee, the employer must keep a record of the number of overtime hours worked by the employee each day orthe starting and ceasing time of the overtime hours.

Further information

For specific advice on drafting a set-off clause, please seek legal advice from Ai Group Workplace Lawyersor call the Workplace Advice Line on 1300 55 66 77 for a referral to someone in our legal team.