Annualised wage reforms – how are you responding?

In the wake of numerous high profile underpayment cases that occurred as a consequence of deficient or unmonitored salary arrangements (footnote – Coles, Woolworths, George Columbaris to name a few), the Fair Work Commission has, effective 1 March 2020, varied a number of modern awards to impose additional obligations on employers that seek to utilise salary arrangements for their workforce.

The Clerks – Private Sector Award 2010 (Clerks Award), an occupational award that covers a myriad of clerical and administrative employees, is one of the awards impacted the changes.

Historically, salary arrangements have been regulated largely by the common law – the general proposition being that a salary can only ‘buy out’ minimum award entitlements if the employer stipulates (e.g. in an employment agreement) the specific entitlements that are satisfied by the salary.

Prior to 1 March 2020, a limited number of modern awards contained obligations that mirrored this common law requirement (including the Clerks Award). However, from 1 March 2020, employers covered by specified awards (including the Clerks Award) are required to:

  1. Advise employees in writing of the number of overtime hours the employee would be required to work without being entitled to further payments;
  2. Undertake annual reconciliations in respect of the salary paid to the employee (to ensure it meets award minima); and
  3. Keep and maintain records of the starting and finishing times of work, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement.

The merits behind the recent changes were extensively deliberated in a number of hearings before the Full Bench of the Fair Work Commission throughout 2019 as part of its four yearly review of modern awards. In those decisions, the FWC suggested that the changes are not intended to interfere with historical common law offsetting principles. The FWC has expressed the following view:

“[E]mployers may, pursuant to private contractual arrangements, pay employees in accordance with a salary arrangement that compensates for or “buys out” identified award entitlements without engaging with the annualised wage arrangements provision in the applicable award (emphasis added).”

At first blush – many employers would air a sigh of relief from the Commissioner’s comments. But employers should exercise caution in relying too heavily on the Commission’s observations.

Summarising two general legal propositions:

  1. Peripheral explanatory observations are not relevant where legislation is clear and unambiguous; and
  2. Where there is conflict between the common law and legislation, legislation overrides the common law.

The newly introduced annualised wage provisions are expressed as obligations – in that employers “must” comply with certain obligations (for example, in relation to record keeping).

However, this doesn’t mean that there aren’t options. Employers wishing to provide annualised salaries may be able to rely on modern award annualised arrangements, common law offset clauses, individual flexibility agreements, guarantee of annual earnings or enterprise agreements.

So what can you do?

Obtain legal advice. You can be forgiven for being confused, particularly since the reforms were introduced in the early stages of COVID-19 disruptions.

Our team of expert workplace relations specialists can give strategic guidance on how to practically respond to the changes and help you meet your legal and commercial objectives.

For further guidance, please do not hesitate to contact us.