The Fair Work Commission’s long running review of modern industrial awards is reaching its conclusion. Industrial awards are being further simplified but a number of new operational provisions are also being included with effect from the start of February 2020. Employers should ensure they are subscribed to the FWC’s award update service – – and should check their applicable award for changes.

A significant change to award based annualised payment arrangements will take effect from the beginning of March 2020. Not all awards contain annualised payment arrangements but for those that do, an updated annualised payment clause will be introduced, with some variation depending on the industry.

This change will have no effect if an employee is simply being paid in accordance with an award (for ordinary hours, overtime, penalties etc). However, where an award based annualised payment arrangement is used, employers will need to comply with the new requirements including specifying in writing:

a. the annualised wage payable;

b. which applicable award provisions are satisfied by payment of the annualised wage;

c. the method of calculation of the annualised wage, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation; and

d. the outer limit number of ordinary hours which would normally attract a penalty rate payment and the outer limit number of overtime hours which the employee may be required to work in a pay period without any extra payment.

If an employee works more than these hours in any pay period, then the employee will be entitled to separate payment in addition to the annualised wage. The clause also requires an annual comparison review with the award and that detailed records of hours of work and breaks are kept and signed off by the employee each pay cycle. For some industries and occupations, an annualised payment arrangement can be terminated on notice.

The FWC has said that employers may make contract arrangements to pay employees in accordance with a salary arrangement that compensates or “buys out” identified award entitlements without engaging with the annualised wage arrangements provision in the applicable award. However, care needs to be taken to ensure:

a. the contractual offset clause is precise about the award entitlements being covered by the above award wage;

b. records of hours worked will still need to be kept and regularly reviewed to ensure that the employee is actually receiving as much or more than they would be entitled to receive under the award; and

c. the payment of an above award wage does not result in the employee being paid less than the award requires for any particular pay period.

Existing contract “offset” clauses may not be sufficient to comply with these requirements.  Given the recent publicity surrounding large corporate underpayments, employers should consider their own particular circumstances in determining the best approach in order to ensure award compliance.  Please contact us if you would like any further information or help.