Annualised salaries-getting it right

As a HR Consultant, I often see businesses paying employees annualised salaries instead of the wage amounts and allowances stipulated under a Modern Award. There’s several reasons to the preference for an annualised salary option:

• it can be easier to process payroll when each employee receives a set weekly or fortnightly amount
• wages costs become more predictable
• predictable take home amount for employees
• paying an annualised salary in excess of the respective award wages and allowances amount allows employers to attract higher quality employees
• the employer’s perception that their employees’ duties are not adequately covered under any Award so the employee is “award-free”
• an annualised arrangement is seen to better cater to more flexible working hours and arrangements

As with any contractual arrangement, an annualised salary agreement should be documented. Having a well worded set off clause that clearly identifies which entitlements are rolled up under the salary agreement provides the first step in protecting yourself as an employer. Additional steps to manage risk include:

• reviewing your existing employee occupations to identify if a relevant Modern Award applies
• ensuring any applicable Modern Award has specific terms and conditions around the provision of an annualised arrangement and that your agreement is compliant with this. The Clerk’s – Private Sector Award 2010 is one such award which notes:

17. Annualised salaries

(b) Where an annual salary is paid the employer must advise the employee in writing of the annual salary that is payable and which of the provisions of this award will be satisfied by payment of the annual salary.

• reviewing annualised salary arrangements on an annual basis to ensure the compensation is at least equal to that offered by the relevant award or industrial instrument

Even if you’re confident your annualised salary payment is in excess of the amount your employees would earn under the relevant Modern Award, having employment documents that clearly spell out what amounts are being paid to satisfy entitlements under the Award is a smart move. Avoiding ambiguity and confusion by having concise document content reduces the risk of future underpayment claims and offers you the benefits of annualised salary arrangement without headaches down the track.

Check out an example of Annual Salary Agreement template at:

https://www.fairwork.gov.au/ArticleDocuments/766/Annual-salary-agreement-clerks-award.doc.aspx