What employers need to know about the new annualised wage arrangements

On 5 May 2022, the Fair Work Commission (FWC) reached a determination of the review of annualised salary provisions in modern awards. As a result, two awards will be updated from 1 September 2022 to include new rules for what can be included in an annualised wage arrangement and how employers need to document and record their agreements.  

What is an annualised wage arrangement?

Put simply, an annualised wage arrangement is an agreement that enables employers to pay a full-time employee a fixed, regular wage each pay period despite potentially working varying hours from week to week. An arrangement must be entered into in writing with the agreement of both the employer and employee. 

Annualised wage arrangements can include the entitlements relevant to the specific award which helps to remove the need to calculate entitlements individually each pay period. Employers need to be aware of the rules and inclusions however, and ensure that any entitlements not covered in the arrangement are still provided to the employee. 

Annualised wage agreements are not new to the Restaurant and Hospitality Awards but a number of new conditions have been added for employees who are on this arrangement.

Which awards are affected and what are the changes?

The new annualised wage arrangements will affect the Hospitality Industry (General) Award 2020 and the Restaurant Industry Award 2020. It’s important to note that the new changes do not apply to employees who are paid as Managerial Staff (Hotels) under the Hospitality award.

Key updates include that the annualised wage arrangement:

- Must be at least 25% more than the minimum wage 
- Can include any or all of the following: 

• Minimum rates
• Allowances (Hospitality Industry (General) Award 2020)‍
• Split shift allowances (Restaurant Industry Award 2020)‍
• Overtime
• Penalty rates
• Payment for annual leave loading (Hospitality Industry (General) Award 2020)‍
• Payment for annual leave (Restaurant Industry Award 2020), and
• Additional public holiday arrangements (Hospitality Industry (General) Award 2020) 

- Covers a maximum of:

• 18 penalty hours per week (excluding hours worked between 7pm to midnight)
• 12 overtime hours per week 

- Hours that exceed the maximum penalty and/or overtime hours per week are termed “Outer Limit Hours” and are to be paid at the relevant award rate applicable in addition to the employees regular salary 

- Must specify the annualised wage amount, which provisions are included, and the number of hours that will attract overtime or penalty rates

- Can be terminated at any time if both parties agree, otherwise either the employer or employee must give 12 months’ notice of termination in writing, and

- Must be reviewed annually from commencement of agreement to ensure the employee is not underpaid

How can employers ensure that they comply with annualised wage agreement obligations?

Whilst the annualised wage agreements exist to benefit both the employee and the employer, the changes may also introduce additional risk and administrative burden for employers. 

As a key component of the new annualised wage agreements is to ensure that the annualised wage does not disadvantage the employee, failure to adhere to the new clauses could come with hefty fines for employers!

It is important that employers:

• Include only the relevant provisions within an agreement
• Pay any entitlements which aren’t included in an agreement separately
• Ensure the annualised wage is at least 25% above the minimum wage multiplied by 52
• Put a comprehensive process in place to conduct an annual reconciliation that confirms there are no shortfalls for an employee's wages, and
• Back pay an employee within 14 days of identifying a shortfall and updating the agreement to adhere to legislation
  
  

Utilising payroll software with built-in tools that automate calculations and reconciliations will help employers to minimise the administrative burden and adhere to new requirements. 

Payroll software can help to:

• Reduce errors in calculating annualised wages
• Record actual hours including overtime, split shifts and unpaid breaks
• Keep track of important dates like agreement date or employee birthdays which might require an increase to salary, and
• Easily manage record-keeping of required documentation like rosters, pay slips or leave requests 

If you’re advising your clients on applying annualised wage arrangements, we recommend providing this employer's guide from the Fair Work Ombudsman. 

How are annualised wage arrangements managed in KeyPay?

In order to adhere to these new changes and help lessen the administrative burden for employers, KeyPay has introduced a new ruleset, pay categories, pay rate templates and employment agreements to accommodate employees paid under the new annualised wage arrangements. 

KeyPay’s new Annualised Wage Arrangements ruleset will:

• Pay employees an annualised wage of 38 hours per week (unless an unpaid leave request has been made), and
• Pay any additional Outer Limit Hours where the employee: 

• Works more than an average of 18 ordinary hours which would attract a penalty rate under clause 29.2(a) of the award per week, excluding hours worked between 7.00pm to midnight
• Works more than an average of 12 overtime hours per week in excess of ordinary hours
• These additional Outer Limit hours will be paid at the relevant penalty or overtime rates, however, these rates are based on the minimum award base rate for their classification rather than their annualised wage rate

This means, instead of manually tracking, calculating and reporting these details, employers can leverage KeyPay’s new ruleset to manage the workload!

For more information on how to configure employees on the annualised wage arrangement, please visit our award support articles - Restaurant Award and Hospitality award. For a detailed walk through of the reconciliation process in KeyPay, visit our support article - Reconciling Annualised Wage Arrangements with Modern Award Wages. 

Don’t forget, there’s more changes to come!

As part of the Annual Wage Review 2021-22, a majority of awards had minimum wage increases come into effect from 1 July 2022, however the Hospitality Industry (General) Award 2020 and the Restaurant Industry Award 2020 were delayed. 

These awards and a number of others, will see an increase from 1 October 2022. You can read more about these increases in our recent blog - Breaking Down the Increase to Award Minimum Wages.

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For businesses operating in the hospitality industry, these recent changes might seem cumbersome and overwhelming to manage without the right advice and support. Learn more about KeyPay’s automated award interpretation or get in touch with the team to find out how KeyPay supports modern award compliance.

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‍Disclaimer: The information in this article is current as at 31 August 2022, and has been prepared by Webscale Pty Ltd (ABN 70-154-693-955) and its related bodies corporate (KeyPay). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. KeyPay does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and to seek professional advice before making any decisions or relying on the information in this article.