Reconcile employees’ annualised salary with their Modern Award entitlements by 1 March 2021 or be in breach of Fair Work Act.

Reconcile employees’ annualised salary with their Modern Award entitlements by 1 March 2021 or be in breach of Fair Work Act.

It is almost 1 March and time for you to review the annualised salary of your award-based employees against their Modern Award entitlements; or you will be in breach of Fair Work Act.

Many business owners like you are wondering what this all means for your business and if you are impacted. This will be the first time there has been a requirement by legislation to conduct an annual wage review for those covered by an Award that includes an annualised wage arrangement clause.

To start with we will overview the relatively new legislation, some of the awards impacted and provide a few tips on what you can do as an employer to better manage the requirement.

 1.    Overview of the FWC ruling and awards that are impacted:

On 1 March 2020, many modern awards introduced an obligation on employers paying annualised salaries (for award based employees) to conduct an annual reconciliation of their employees' ‘all in’ salaries.

This reconciliation must determine whether the amount paid to employees receiving an annualised salary during that previous 12 months is equal to or more than the employee would have been paid if paid strictly in accordance with the relevant Award.   

As the one year mark is quickly approaching, it is obligatory on employers to determine:

  • whether their ‘salaried’ employees are covered by an Award for the terms and conditions of employment;
  • if yes, to calculate the hours worked, wages, penalties, allowances that would have accrued for that Award-based employee.
  • Once those two steps have been completed, you will need to determine whether the annualised salary was equal to or more than wages paid strictly in accordance with the relevant award – if yes, there is no problem. However, if the salary is less than what would have been to that employee under an award-based wage, you will need to back-pay the difference and ensure superannuation is also paid on that back-pay.

Some of the awards are:

  • the Banking, Finance and Insurance Award
  • the Clerks - Private Sector Award
  • the Legal Services Award
  • the Hospitality Industry (General) Award

2.    What your business needs to do before 1 March 2021, if you have employees on an annualised salary and whose work conditions are governed by a modern award-covered.

a. If you are an employer paying annualised salaries under an affected award, you will need to compare the amount paid to your affected employees over the past year with the amount payable under the relevant modern award. Any shortfalls identified must be paid within 14 days.

b. It is vital you calculate and compensate where necessary each award affected employee in relation to all of their award entitlements based on the hours worked (including overtime and any other penalties).

c. Employers who do not ensure the annual salaries sufficiently compensate the employees for their award entitlements may face serious consequences including:

                   i.    claims by employees for back-pay

                  ii.    prosecution by the Fair Work Ombudsman, including fines of up to A$666,000 per breach in cases of serious contravention

                 iii.    "on the spot" fines by the Fair Work Ombudsman

                 iv.    business reputational damage

As you can imagine, reconciling and calculating this for each individual employee, in addition to any potential back-pay within the regulatory 14 day period could be extremely costly in both time and money.

Akyra advice to all clients is to conduct the salary reviews on a quarterly basis as this will allow you to manage any anomalies as soon as they arise and ensure you don’t have to pay a potentially large back-pay that must be paid out to an employee in a lump sum. 

An outcome from the reconciliation may result in further workforce insights – e.g.

  • Does the employment agreement requires amending in line with the award wage anomalies
  • If an employee is undertaking substantial overtime, is it a productivity issue, personnel issue or is more adequate staffing on a full time or casual basis potentially required.

 3.    Next steps, how can Akyra help?

Akyra understands that undertaking this process can be complex and time-consuming. With the due date of 1 March 2021 fast approaching. Akyra can assist you by:

  • helping you to understand your obligations and modern award pay rules;
  • ensuring you are complying with the law; and
  • assisting in the financial analysis involved in comparing your employees' payments over the past year with their entitlements under the modern day award

It can be a daunting prospect for businesses and managers to not only know where to start, but how to manage the award review process entirely, not to mention the implications if you get it incorrect.

Akyra can provide you with a review of modern awards, employment agreements, wages and entitlements to ensure you are compliant with the Fair Work Act. 

Every industry and business will have unique requirements and for further guidance or advice on Human Resource Management. Contact us now to book a time to discuss your areas of potential HR concern, thereafter we will provide a way forward where it might be needed.

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