A February 2023 Federal Court decision considered whether payments made by an employer to employees in line with their employment contract could be applied to offset their entitlements to wages, leave payments and leave loadings under the relevant award.
The decision in Wardman v Macquarie Bank Ltd considered the characterisation of monthly payments made by the employer, the Bank, to its employees. Notably, the employees were covered by the Banking, Finance and Insurance Award 2010 and were also individually parties to a contract of employment. The employment contracts provided that each employee’s remuneration package included a commission structure, referred to as ‘Basic Costs Responsibility’ (‘BCR’).
In practice, this means that the employees received a fixed salary component, consisting of 12 equal payments annually. Employees received these payments in the middle of each month, with half of the payment in arrears and the other half made in advance.
The employees brought an underpayment claim against their employer, arguing that the fixed payments they received ought to be categorised as an advance on their commission, and that the second payment was the remainder of the commission. The employees argued that as commission, the payments did not discharge the obligations under the Award to pay the wages owed to them, and that they had not received payment for leave and leave loading.
The Bank argued that the amounts paid to the employees were in excess of the ordinary pay rates prescribed by the Award and as such would offset any entitlements. The Bank also claimed that the salary component of the BCR payments fulfilled any wages that may have been payable to the employees under the Award.
In the initial trial, it was held that the payments made to the employees did not discharge the Bank’s statutory obligations to entitlements relating to leave. However, the trial judge categorised the payments made to employees as salary, rejecting the employees claims that they were not appropriately paid wages. The Bank and the employees respectively appealed these judgements made against them.
On appeal, it was found that the payments made by the Bank did sufficiently discharge its obligations to pay leave entitlements to the employees. It was held that the regular payments under the employment agreements were directed to the same purpose as the statutory obligations to pay the employees for their ordinary hours or work during any periods of leave, or for absences on public holidays. It was further held that the sufficient correlation between the payment and the obligation to maintain employees base rate of pay during periods of leave or for public holidays such that it was effective to discharge the obligations.
How to determine if payments off-set obligations
The judgement in this case carves out a clear process for determining whether or not a payment under a contract will offset award entitlements. The process requires the following questions to be considered and addressed:
- What is the objective intent of the payments under the contract?
- Is the intention sufficiently similar to the entitlements under the Award or statute?
As in this case, a payment will discharge an award obligation where the intention of the contractual payment is sufficiently similar to the obligation.
If you require more information about how any of the above changes to Workplace laws may affect you or your business, reach out to our experienced Workplace team for advice tailored to your situation.
For further information please contact Danny Clifford, Director of Employment and Workplace Law.