When the Fair Work Commission made changes to annualised salary provisions in modern awards back in March 2020, the payroll landscape changed for many Australian companies. Suddenly, this well-entrenched approach to paying employees became an administrative nightmare. The changes were put in place to address the growing number of Australian companies who were underpaying staff. So, while painful, we can all agree that they were absolutely necessary.
In this article, we answer the question “What are the alternatives to annualised salaries?”. We encourage you to examine whether this model is worth the effort, and we offer some alternatives. And if you decide to continue, we’ll provide some checks to ensure that you comply with the provisions and are paying employees correctly.
Modern awards and annualised salaries in a nutshell
Before we go all introspective on you, let’s re-introduce the key players: modern awards and annualised salaries.
In Australia, modern awards set out the minimum terms and conditions of employment in certain industries, in addition to the National Employment Standards (NES). Modern awards cover things such as pay, hours of work, breaks and overtime. An annualised salary arrangement agrees to pay employees one salary that covers all the entitlements of their award.
The impact of the Fair Work Commission changes
Annualised salary arrangements were once considered a good ‘catch-all’ approach to paying employees. A salary would be offered, negotiated and accepted. The employee would be paid the same amount each pay period. Easy. When the Fair Work Commission changed the modern award clauses, annualised salaries got a lot more complicated.
Organisations had to put in place extra processes and suddenly, the calculations were no longer straightforward. In addition to the increased complexity, admin overhead went through the roof, and payroll managers suddenly had to police employees to ensure that they were recording start and finish times and breaks accurately.
Payroll processing — an already difficult job — got even harder. Finding skilled payroll people was already challenging, and now even more skills were required.
Decision time
The increased complexity that the Fair Work Commission changes brought about means that annualised salaries may not be right for all organisations. A good amount of time has passed since the annualised salary clauses came into effect. So take a step back and assess whether salary annualisation is working well in your organisation.
- Are you guaranteeing employees more than the current mandated high-income threshold? If you are, then this is considered to be an alternative to dealing with the provisions in modern awards.
- How much time is your payroll team spending on the admin required to make this work?
- Are your processes efficient, or are they a soul-destroying waste of time?
- Are you confident that you are complying with all of the provisions under the Fair Work Act 2009?
- Do you have the right framework (systems, documentation, tools, review meetings, processes) in place to support compliance?
- Can you be confident that employees are recording start and finish times and breaks accurately in the absence of an automated time and attendance system?
- Do your employees understand their agreements and the part they play in ensuring that their pay is correct?
- Are your employees getting paid the right amount?
Alternatives to annualised salaries
If the time and effort required to make annualised salaries work is too much, or you can’t get it right, there are alternatives which may be easier to manage.
- Instead of a salary, pay employees an hourly rate that is higher than the award (while still adhering to the award conditions).
- Pay more than the current mandated high-income threshold.
Moving forward with annualised salaries
If you’ve decided to continue with annualised salaries, here’s our 4-point plan to getting compliant and reducing admin.
1. Get a handle on the legislative requirements
- Employee contract clarity and compliance.
- Reconciliation requirements.
- Record-keeping, including breaks.
- Payments to underpaid employees.
2. Put a framework in place
Ensure that the right documents, systems, templates and processes are in place to support record-keeping. For example:
- Ensure that each employee contract contains the required information that clearly states how their salary is calculated and how it compares to the award.
- Do a reconciliation for employees who terminate.
- At the end of the tax year, do a reconciliation for all employees.
- Track employee start, finish and break times via timesheets or another method.
- Identify and make payments to employees when they work more than the defined outer limits.
- Communicate to your employees and ensure that they fully understand what their annualised salary includes and does not include.
3. Make it easier for employees to record start, finish and break times
This could mean better timesheets, getting an automated time and attendance system, changing the culture, or teaching employees the importance of record-keeping.
4. Understand the consequences of non-compliance
The legislation makes clear the penalties for non-compliance so we suggest taking another look at the requirements to ensure you are covered.
Conclusion
While we can’t tell you what to do, we strongly suggest taking the time to examine whether annualised salaries are still working for you and your employees. We recommend looking at the alternatives, or if you choose to stay with annualised salaries, ensure that your processes are watertight and all employees know what makes up their salaries.
For over thirty years, Affinity has been a trusted partner for mid-market and enterprise businesses in Australia and New Zealand, empowering them to transform their payroll operations. With a focus on turning payroll from a cost into an asset, we have established ourselves as industry leaders in delivering innovative cloud-based payroll software and exceptional payroll services.
