Australia: Employers need to be aware of recent changes to the modern awards

Major changes to the modern awards came into effect in February this year, as the Fair Work Commission (FWC) concluded its four-yearly review. Obligations on employers are set to increase and employers need to be clear on changes they may need to implement.Susan Moran, Principal of our Employment team, discusses how these changes and the conclusion of the four yearly review will affect you.

The FWC reviewed all modern awards over the past six years and announced the first roll out of the new modern awards that came into operation on 4 February 2020. The first roll out only included some modern awards, with the rest to be rolled out in stages later in the year. For a list of the modern awards that were rolled out in February, follow this link.

It is essential for employers to review the modern awards applicable to their employees, to ensure that any changes relevant to their workforce have been implemented. For example, the modern awards no longer include the 'Absorption Clause' which has been commonly relied upon by employers to offset over award entitlements, effectively allowing them to fulfil their obligations under the award when paying an above award flat rate. You can read more about how to effectively set off over award payments in our recent article,here.

Annualised salaries, provided for under several modern awards, have also been revised and result in increased obligations on employers. Annualised salaries comprise paying a fixed annual salary to the exclusion of other award entitlements which would otherwise have to be paid, including allowances, overtime and penalty rates. These arrangements vary from award to award.

While providing flexibility to employers, the volume of underpayments to employees as a result of the use of annualised salaries mean more stringent obligations are set to be imposed. These changes were effective from 1 March 2020 and will vary to some extent depending on the relevant award.

Such obligations will include:

1. You are required to notify your employees of how their salary is calculated

Previously, employers were required to advise an employee in writing of the annualised salary they were to be paid and which provisions of the award would be satisfied by the annualised salary. As of 1 March 2020, there are also requirements to advise the employee of:

• the method used to calculate the annualised salary, including specifying any overtime or penalty rate assumptions used in the calculations; and
• the outer limit of ordinary hours and overtime hours that have been reflected in the annualised salary before the employee is entitled to any additional payments.

If hours are worked outside of the outer limits as described above, employers will need to make additional payments to employees in respect of those hours.

2. You will be required to reconcile annualised salaries every 12 months

The new annualised salary provisions will introduce a reconciliation process where every 12 months (or following termination of employment), the employer must calculate the amount that would have been payable to the employee under the relevant award over the preceding 12 month period and compare that amount to the amount paid under the annualised salary. Any shortfall will need to be reconciled within 14 days.

3. Requirement for employee acknowledgment of certain records

Employers are required to keep a record of the starting and finishing times worked by their employees, as well as any unpaid breaks taken. The record must be signed or acknowledged as correct in writing by the employee each pay period and used as the basis for the reconciliation set out above.

It is important to carefully review the modern awards applicable to your employees and the various changes that were introduced. The new annualised salary clauses were inserted into the following modern awards on 1 March 2020:

If any of the above modern awards apply to your employees and you pay your employees annualised salaries, check that you have complied with the notification requirements and have begun keeping records as set out above.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.