On 20 February 2018, a Full Bench of the Fair Work Commission handed down an important decision in the 4 Yearly Review of Awards, the Annualised Wage Arrangements Decision [2018] FWCFB 154. In this case, a Full Bench of the Fair Work Commission reviewed the annualised salary clauses in those awards that contain such clauses, including the Clerks – Private Sector Award 2010 and 18 other awards.

In its decision, the Full Bench reached a number of conclusions about annualised salary clauses in modern awards and their compliance with the Fair Work Act 2009, including:

• There should be a requirement for individual agreement to be reached with the relevant employee before an annualised salary arrangement is introduced in circumstances where the working hours of the employee are highly variable from one week to the next or over the course of a year;
• Where the annualised salary arrangement is by agreement, it should be terminable by the employer or employee at annual intervals upon notice;
• The annualised salary arrangement should be in writing;
• In no circumstances should an annualised salary clause in a modern award permit or facilitate an employee receiving less pay over the course of a year than they would have received had the terms of the modern award been applied in the ordinary way, and it is essential that the clause contain a mechanism or combination of mechanisms to ensure that this does not happen. The Full Bench has identified three types of mechanism to ensure this:
  • A requirement for a minimum increment above the base rate of pay, prescribed in the annualised salaries clause itself, including an outer limit on the number of overtime or penalty rate hours which are compensated by the increment;
  • A requirement that the arrangement identify the way the annualised salary is calculated; and
  • A requirement that the employer undertake an annual reconciliation or review exercise, and be required to keep records of overtime and penalty rate hours; and
• Annualised salary arrangements should only have application to full-time employees unless a workable proposition can be identified for the application of such provisions to part-time employees.

The Full Bench has provisionally proposed a number of model annualised salary clauses to give effect to the above conclusions, all of which have problematic elements.

Submissions in response to the Commission’s model clauses are due by 20 March 2018 with reply submissions due by 3 April 2018. Ai Group will lodge detailed submissions and work hard to ensure that annualised salary clauses in awards remain workable and continue to provide the flexibility to employers and employees that these clauses were intended to provide when they were originally inserted into the awards.

If you would like more information about wages and payment cycles, please contact Ai Group’s Workplace Advice Service on 1300 55 66 77.

Alternatively, if you would like advice about structuring annualised salaries, please contact your local employment, workplace and industrial lawyer in Sydney, Newcastle, Wollongong, Melbourne or Brisbane or email Ai Group Workplace Lawyers at info@aigroupworkplacelawyers.com.au.