Following the decision of the Fair Work Commission (FWC) in February of 2019, the obligations of employers who pay annual salaries are changing.
While the changes will vary between awards, starting on 1 March 2020 most employers who pay employees an annual salary will have to:
- Notify employees in writing of their annual salary;
- Outline which sections of the award will apply to the employee;
- Specify the employee’s maximum ordinary working hours (outside of the 38-hour workweek) – This will document the number of overtime or penalty rate hours included with the employee’s annual salary;
- Pay the employee (overtime or penalty rates) within the pay cycle for work done which exceeds the maximum ordinary working hours;
- Keep records of employee’s start, finish and unpaid break times. Employees should confirm the hours worked are accurate by signing the record;
- Reconcile a workers annualised salary every 12 months (from the commencement of starting an annual salary or termination of the employee) and if there is a shortfall, pay the employee any shortfall within two weeks. To determine the reconciliation amount, the employer should calculate the amount the employee would have been paid based on the hourly rate of the award. If the calculation is greater than the employee’s annual salary, the employee’s salary is to be reconciled and (if appropriate) topped up.
In certain awards, employees must agree to an annual salary. This means the employer can’t dictate whether their employees are paid a salary or on an hourly basis.
Failure to comply with an award (and changes to an award) can lead to significant financial penalties for the employer and individuals involved. One of the biggest mistakes an employer can make is assuming that if they pay an employee above award rates than all the obligations under the award is met. Employers must abide by all of the award’s terms.
This case serves as a good reminder to employers to continue to review their employment practices. Modern awards change frequently, and the onus is on businesses to stay up to date. Employers should subscribe to FWC email updates, frequently review their employment practices and seek professional legal advice on how their business can comply with awards.
If you want more information about the specific changes coming March 1, or want to know if your business may be affected, please contact one of our Workplace Law team members.