Are you paying your staff a set salary? Check you are meeting your compliance requirements

A recent Federal Court decision “FWO v Coles and FWO v Woolworths” has highlighted the need to ensure Employers understand their legal obligations when employing staff.

An “award” employee’s pay and conditions are governed by a Modern Award, providing minimum rates, penalty rates, and allowances for specific industries and jobs.

Some employers choose to pay their staff a “salary”. Under a salary an employee receives a fixed annual package, which must compensate for their award entitlements. This is known as an annualised wage agreement.

An annualised wage is where an employer pays their employee a fixed regular amount each pay period over a year. Paying an employee an annualised wage is an alternative to paying them an hourly wage for each hour worked in a pay period.

Compliance Requirements

There are specific requirements for compliance when paying an annualised salary which will be documented in the employees applicable award.

Awards usually provide that an annualised wage has to be reviewed every 12 months or when the arrangement or employment ends, if this is before the end of the 12-month period.

The review is to check if the employee was paid at least what they would have been entitled to under the award, for the hours worked, if they hadn’t been paid the annualised wage.

When reviewing the annualised wage, if the total amount the employee was paid in that period was less than what they would have been paid under the award, the employee must be paid the difference.

👉 Fair Work Reference

Salary vs Award

Regardless of how an employee is paid, it is critical for Employers to understand that even though a Salary is set for a role and has been agreed to, the employee is still entitled to be no worse off that had they been paid according to their award.
There are very few exceptions to this.

The majority of employees in Australia are governed by an award. The exception being a handful of professional type roles (Accountant, HR, Executive Managers for example) that are considered award free.

For example: A Facility manager of a Transport Distribution Facility is covered by the Road Transport and Distribution Award 2020 as the award specifically includes a role classification that would cover the majority of their work.

Therefore, based on their actual hours worked the employee on a salary can be no worse off than if they had been paid the award rates with all the applicable entitlements, allowances, penalty rates.

Contracts vs Entitlements

Having a contract with an employee does NOT override or exclude award entitlements.

Entitlements may be specific allowances, shift penalties, overtime penalties, leave loading and other role specific entitlements.

A contract can’t make employees worse off than their minimum legal entitlements. This means that the entitlements in the award that applies to them, and the entitlements in the NES, keep applying, even if they sign a contract that gives them less.

It is timely to conduct regular review on your staff contracts, salaries and arrangements to ensure continued compliance.