SMH Blog

Annualised Wage Arrangements - Big Deal or Not?


Flexibility changes

1. The Fair Work Commission made changes last year to the flexibility provisions in Modern Awards covering a broad spectrum of industries including for clerks and restaurant workers, effective 1 March 2020. The Commission is rolling out the changes to all other Modern Awards over the next few months. The changes are only for full-time employees.


2. Under almost all Modern Awards, employers can pay employees above the minimum (which I call in this article the ‘top-up’) in order to avoid the hassle of calculating and accounting for various entitlements, including: 

minimum weekly wages;
 allowances for uniform, meals and travel;
 overtime rates and penalties; and
 annual leave loading.

The relevant Modern Awards permit this flexibility, so long as the employee is no worse off. As this can be open to some abuse, the Fair Work Commission want to improve regulation to ensure that employees are not overly disadvantaged.
3. From 1 March 2020, employers need to calculate and account for all of the employees’ entitlements and allowances as if there were no flexibility provisions and then ensure that the employee is paid those minimums and entitlements at the end of each 12 months. That requirement will be quite difficult to implement for most employers, who have legitimately avoided accounting for those entitlements by paying the top-up by way of increased wage.


Mountain or a Molehill?

4. In the explanatory documents issued by the Fair Work Commission prior to these changes, the Commission explained that employers who pay a healthy top-up and are well above the minimums would not need to make any changes to their employment agreements. However, those employers who justify the non-payment of the allowances and entitlements by just scraping over the minimum, are in danger of falling foul of these new arrangements and will be subject to potential audit and sanctions from 1 March 2020.

5. Whether these changes represent a mountain or a molehill depends on the extent of the top-ups being paid, and, as always, the documents and evidence held by the employer.

6. First step for all employers, whether the top-ups are large or small, is to assess to whom it will apply –
(a) which employees are full-time;
(b) which employees are subject to a Modern Award that has the change imposed;
(c) which employees have flexible entitlements paid by the top-up and what entitlements are they? 


7. Next step is to work out how much should be paid to the full-time employee to make sure that if the minimum wage was being paid under the Award, what would be the monetary value of the entitlements that the employee would otherwise receive? Then compare that to the top-up being paid and the employer can see if it is enough.

8. Next step is to work out historically if the full-time employee has been underpaid and, if so, make it up.

9. Next step is to vary any written employment contract, or create one, so that the employee agrees that the top-up is sufficient, the calculations are agreed to by the employee and that the employee agrees to not receiving the entitlements that are subject to flexibility and prefer to have the top-up in cash. This needs to be done in the manner prescribed in the Modern Award. 



10. We suggest all employers go through the above steps, now. By doing that, employers will also be writing out their justification of the top-ups which will provide ready justification for Fair Work if there is any complaint and audit.

11. Given the recent spate of Fair Work’s activity in this space and the devastating reputational damage that follows (Calombaris and 7-Eleven to name but two), I do not expect any leniency if there are breaches of these laws.

For any questions, please contact Frank Dwyer. 


Frank Dwyer Special Counsel
Accredited Specialist Business Law Small Myers Hughes Lawyers

Direct: 07 5552 6647
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Posted in: SMH Blog at 18 March 20


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