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Australia: Important changes to salary clauses in many modern awards

As part of a four-year review, Australia’s Fair Work Commission (FWC) has made important salary-related changes to a number of modern awards. Modern awards are government-issued contracts used to define the minimum terms and conditions for employment in Australia.

The new rules took effect from the first full pay period on or after 1 March 2020. They impose stricter wage-related reporting requirements on businesses with salaried employees. They’re part of the FWC’s broader strategy to reduce worker exploitation by Australian employers. Failure to comply can result in costly fines and significant reputational damage.

Worker exploitation in Australia has attracted widespread media attention in recent years. Some of the nation’s largest employers have been exposed for underpaying their staff, an offense commonly referred to as “wage theft.” Target, Woolworths, Coles, Qantas, ABC and the Commonwealth Bank of Australia are on the long list of companies that have admitted to wage theft.

The most notable wage-theft case involves celebrity chef George Calombaris and his restaurant empire, the MAdE Establishment. After a four-year inquiry, investigators found that among other violations, Calombaris’ restaurants neglected to pay earned overtime, penalty rates and/or correct award levels to over 500 employees. The group was ordered to pay back a total of AU$7.83 million in wages owed to staff.

It also made an AU$200,000 “contrition payment” to the federal government. Many commentators have observed that this payment is paltry given the millions of dollars involved. Even Australia’s Fair Work Ombudsman Sandra Parker agreed the fine should have been more substantial. When reviewing wage-theft cases in the future, she said, her agency would “take into account the size of underpayments when assessing the size of contrition payments.”

This prospect of increased penalties — in addition to paying back any unlawfully withheld wages — should cause Australia’s employers to take notice. If that weren’t enough, the government announced plans last year to introduce new anti-wage theft legislation. If passed, businesses that fail to comply could face lengthy jail sentences, public condemnation, director disqualifications and other consequences. 

The remainder of this post provides details of the newly imposed annualised wage arrangement provisions in Australia’s modern awards, including what your business needs to do to comply.  

Modern awards wage changes explained 

The Fair Work Commission has inserted new annualised salary clauses into a number of modern awards. The new rules introduce additional obligations for employers to ensure that employees with annualised salary agreements are not underpaid. An annualised salary agreement simply means that an employee is paid a fixed annual income. 

The changes apply to the annual salary provisions of several modern awards including: banking, finance and insurance; legal; contract call centres; telecommunications; and others. (For a complete list of the affected awards, click here.)

Here is a list of some of the most significant new requirements to the affected awards.

Written notification

Employers must provide employees with a written statement that includes information about the annualised salary payable, the method used to calculate it, and any other award provisions factored into the calculation. 

Outer limit payments

Employers must pay employees for any additional hours worked outside of the “outer limit” in addition to their salary. This payment must be made separate from the annualised wage, but within the same pay period. 

Annual reconciliations

Employers must conduct annual audits of their salaried employees’ actual pay compared to their modern award entitlements. Any discrepancies must be corrected and paid back to the employee within 14 days. 

Record keeping

Employers must keep detailed records of their employees’ actual start and finish times, including overtime and any unpaid breaks. Additionally, they must ask employees to formally acknowledge that the record of hours is correct for each pay period.

Employer next steps

Employers in Australia should understand what modern awards are affected by the changes and whether those awards apply to their employees. Employers must also ensure that their affected employees are paid according to the new rules and that they take other steps necessary to comply, such as providing employees with written statements as described above.

Employers should also regularly check the Fair Work Ombudsman website for updates, especially during the ongoing COVID-19 crisis. On March 28, for example, the Fair Work Commission announced that it had added flexibility to the Clerks Award during the coronavirus outbreak.

Laura Marshall, Senior HR Consultant, contributed to this article. 

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