Annualised Salaries and New Wage Theft Laws. Is Your Business Ready?
Annualised Salaries and New Wage Theft Laws. Is Your Business Ready?
As an employer, are you confident that your annual salary arrangements are legally compliant? With significant legislative changes coming into effect on 1 January 2025, it’s important to ensure your business meets all legal obligations, especially regarding annualised salary arrangements under modern awards.
Understanding Minimum Wages and Annualised Salaries
The minimum wage is the base rate of pay for ordinary hours worked and is set by the Fair Work Commission. For employees covered by a modern award, each classification has a corresponding minimum hourly rate which excludes specific entitlements such as penalty rates, overtime, allowances, and annual leave loading.
An annualised salary is an alternative to paying employees hourly rates for each hour worked. It bundles the base salary and certain award entitlements into a single annual figure. While this can simplify payroll, it doesn’t exempt employers from complying with award conditions or the National Employment Standards (NES).
Award-Based Employees vs. Award-Free Employees
- Award-Based Employees are Covered by a modern award that stipulates minimum terms and conditions. Even when paying above-award rates, employers must comply with all award provisions, including overtime rates, penalty rates, and allowances.
- Award-Free Employees are not covered by any modern award or enterprise agreement. Their employment terms are governed by their employment contract and the NES.
The Importance of ‘Outer Limits’
Outer limits refer to the maximum number of overtime or penalty hours that an employee can work without receiving additional payment beyond their annualised salary. These limits are important because setting clear outer limits ensures that employees are adequately compensated for extra hours worked and protects employers from unexpected underpayment claims.
The employer and employee agree on the outer limits, but they must comply with any specifications in the relevant modern award i.e., some modern awards will expressly stipulate the outer limits, and these must be adhered to.
If an employee works beyond the outer limits, they must be paid separately for the additional hours at the appropriate overtime or penalty rates specified in the award at the time that they are worked; not at a future date.
Reasonable Additional Hours and the NES
Under the NES, employers can request employees to work reasonable additional hours beyond their ordinary hours. However, what is considered ‘reasonable’ depends on factors like:
- Any risk to health and safety from working extra hours.
- The employee’s personal circumstances, including family responsibilities.
- The needs of the workplace.
- Whether the employee is entitled to receive overtime payments or penalty rates.
It’s important to note that even if additional hours are deemed reasonable, they must still be compensated appropriately as per the award or agreement.
If you are paying an annualised salary that includes an agreed number of overtime hours per week, you must ensure that the agreed number of hours is reasonable, and you must also ensure that you regularly perform a reconciliation of the number of overtime hours worked to avoid exceeding the agreed limits. If the agreed limits are exceeded, you must make a back payment.
Conducting Regular Pay Audits and Reconciliations
Failing to conduct regular pay audits and reconciliations can lead to underpayments, breaching the Fair Work Act (FWA). Regular audits help ensure:
- Compliance by confirming that employees are receiving at least the minimum entitlements under the award or NES.
- Accuracy by identifying any discrepancies between hours worked and payments made.
- Risk Management by mitigating the risk of significant penalties for underpayment.
Consequences of Non-Compliance
With the new legislation effective from 1 January 2025:
- Criminal Penalties for intentional underpayment of wages or superannuation will be criminalised.
- Investigative Powers will be given to The Fair Work Ombudsman (FWO) to investigate underpayments and refer cases to the Department of Prosecutions.
- Serious Contraventions even honest mistakes resulting in significant underpayments can attract severe penalties.
Key Steps to Ensure Compliance
- Understand Your Obligations
Familiarise yourself with the modern award relevant to your industry and your employees’ classifications. Know the minimum wage rates and entitlements.
- Set Clear Outer Limits
Define the maximum number of overtime or penalty hours in writing, as per the award requirements.
- Maintain Accurate Records
Keep detailed records of all hours worked, including start and finish times, breaks, and any overtime. Employees should verify these records each pay period.
Penalties exist for breaching record-keeping obligations and are currently $469,000 per breach.
- Conduct Regular Reconciliations
At least annually, reconcile employees’ actual earnings against what they would have been entitled to under the award. Rectify any underpayments within 14 days.
- Ensure Reasonable Additional Hours
Assess whether additional hours are reasonable and ensure they are compensated according to the award and NES.
- Update Written Agreements
Document all annualised salary arrangements, specifying included entitlements and outer limits.
- Seek Professional Advice
Consult with legal or HR professionals to navigate complex award conditions and legislative requirements.
Avoiding Common Pitfalls
- One-Size-Fits-All Salaries
Avoid applying the same salary across different positions without considering individual award classifications and entitlements.
- Inadequate Record-Keeping
Failure to maintain accurate records can lead to significant penalties.
- Ignoring Award Provisions
Disregarding specific award requirements, such as penalty rates and overtime, can result in underpayments.
- Neglecting Reconciliations
Skipping regular audits increases the risk of non-compliance and financial penalties.
Conclusion
With the upcoming changes to wage theft laws, it’s imperative to review your payroll practices. Understanding minimum wages, setting appropriate outer limits, ensuring reasonable additional hours, and conducting regular pay audits are essential steps to protect your business from legal risks and foster a fair workplace.
Taking proactive measures not only ensures compliance but also enhances your reputation as a responsible employer.
Need Assistance?
Navigating these changes can be challenging. Our team is here to help you ensure your annualised salary arrangements are compliant with modern awards and the NES.
Contact us today to schedule a consultation and safeguard your business.