On 1 March 2020, new rules came into effect for annualised wage arrangements under 22 modern awards, including the Banking, Finance, & Insurance Award and the Clerks – Private Sector Award. The new rules are designed to ensure that the annualised wages of employees under these awards are sufficiently high enough to cover specific entitlements like over time and penalty rates. On the face of it, it’s very straight-forward and employers should have already been covering the entitlements under many of these awards. However, high profile incidents of underpayment in the past few years demonstrated that this was not happening and led to the introduction of more prescriptive rules for employers.
While employers should be adhering to these rules already, we know from speaking with many businesses about their payroll that there have been delays and challenges in ensuring compliance. This is in part due to the pandemic and employers not having the time or resources to implement the required changes. However, we found some employers still had little awareness of the changes and the implications for how they pay their employees. For this reason, we feel its timely to revisit the annualised wage changes and what employers need to do to meet their obligations.
What has changed about annualised wages
Employers who pay their employees an annualised wage under one or more of the impacted awards will need to follow the four steps below to ensure compliance.
1. Review and amend employment contracts
In many cases, employment contracts will need to be amended to include the following:
- The method by which the annualised wage has been calculated, including specification of each separate award component of the annualised wage and any overtime or penalty assumptions;
- Specification of the outer limit number of ordinary hours in a pay period that would attract penalty rates included in the annualised wage
- Specification of the outer limit of overtime hours that the employee may be required to work in a pay period included in the annualised wage
2. Record work time and obtain employee acknowledgment
One of the most difficult changes for some businesses is that they now need to manage time and attendance for
employees who receive annualised wages. Specifically they need to record the starting and finishing times of work, and any unpaid breaks taken and these records need to be acknowledged by the employees.
3. Pay for hours worked in excess of "outer limits"
If hours are worked outside of the "outer limits“ for a pay period, employers need to make additional payments to employees in respect of those hours at the Award rate in the pay period.
4. Annual reconciliation:
Every 12 months (or following termination of employment), employers must calculate the annual amount that would have been payable to the employee under the Award (including all components) and compare that to the annualised wage paid. Any shortfall must be paid within 14 days.
How to simplify compliance
Adherence to these rules can be especially challenging for employers who have never had to manage time and attendance and have manual processes around payroll. The good news is that solutions already exist that can make this change much easier for both employers and employees
- Capture employee time worked effectively and efficiently
- Automate processes like defining ‘outer limit’ rules
- Streamline annual reconciliation and determine where shortfall payments are required
To learn more, read our explanation of annualised wage changes and watch this on-demand webinar. We can also share more information on how ADP can help you to simplify compliance and minimise disruption to your business and employees. Contact us today.