By Cristina Serra

Workplace Relations


Annualising salaries can be complicated business and new rules are going to make the red tape even redder. Currently, some modern awards allow a flexible agreement between employers and employees to annualise their salaries.

This means, under certain parameters, the operational bureaucracy of calculating overtime, penalties, etc. can be avoided.

An employer can provide a salary that incorporates these extra amounts by paying a higher than normal rate.

In effect, it allows employers to ‘buy’ out various award entitlements – instead of having to calculate and pay actual hours each roster period.

But here is the issue – if you are paying less than the actual hours worked – then you may have an underpayment claim on your hands. The Fair Work Commission has introduced some new obligations on employers paying annual salaries under these provisions.

Rules from March 1, 2020:

  • Keep a written document outlining the conditions of the agreement;
  • Only available to full time employees;
  • Information on how annualised wage is calculated and what it compensates them for;
  • The outer limits of their ordinary hours each pay period;
  • An annual reconciliation (from the day of the agreement);
  • Shortfalls must be paid within 14 days;
  • Records of start and finish times, including unpaid breaks;
  • Employee sign off.

How will your payroll system cope with these changes?

At this stage it only affects certain Awards such as Banking, Finance and Insurance Award 2010 and Clerks, Private sector Award 2010 (contact the TCCI to see if your award is in this list). It is envisaged the Fair Work Commission will introduce these changes to other Awards. But, it is unclear how this will affect employment Contracts.

If you have annualised salary components in Employment Contracts, ensure they are legally compliant with well drafted clauses covering the salary components you wish to include.