It has been a while since proposed changes to annualised salary arrangements in the Hospitality Industry (General) Award 2020 (‘HIGA’) arising from the Fair Work Commission’s (‘FWC’) Four Yearly Review of Modern Awards (‘the Review’) have featured in our communications with members.
In the January 2020 edition of Update (available HERE), we advised that proposed changes to clause 24 (then clause 27.1) of the HIGA had been put on hold pending resolution of some outstanding matters.
The Review is now in its final stages and on 9 February, the FWC brought the matter of annualised salaries in the HIGA on for Mention and programming so that this common issue can be finalised. The Australian Hotels Association (‘AHA’ - national body for the QHA) appeared, with the Mention resulting in interested parties being offered the opportunity to reflect on the submissions made in February 2020 and make any submissions in addition to these by 2 March 2022. It is likely that the FWC will issue a Decision and subsequent Determination confirming the amended content of clause 24 shortly after that.
What is outstanding?
In summary, in assessing clause 24 of the HIGA the FWC has been required to consider section 139(1)(f) of the Fair Work Act 2009 (‘Act’). Section 139 provides that a modern award such as the HIGA may include an annualised salary term. The term must:
(i) have regard to the patterns of work in an occupation, industry or enterprise;
(ii) provide an alternative to the separate payment of wages and other monetary entitlements; and
(iii) include appropriate safeguards to ensure that individual employees are not disadvantaged.”
Consistent with these considerations, in 2019 the FWC developed four model clauses intended to address annualised wage arrangements modern awards.
Clause 24 of the HIGA was identified as one that would be replaced by model clause 4.
The model clause reads:
- Annualised wage arrangements
X.1 Annualised wage instead of award provisions
(a) An employer and a full-time employee may enter into a written agreement for the employee to be paid an annualised wage of an amount that is at least X% more than the minimum weekly wage prescribed in clause X multiplied by 52 for the work being performed in satisfaction, subject to clause X.1(b), of any or all of the following provisions of the award:
(i) clause X – Minimum weekly wages;
(ii) clause X – Allowances;
(iii) clause X – Overtime penalty rates
(iv) clause X – Weekend and other penalty rates; and
(iv) clause X – Annual leave loading
(b) The employee must not be required by the employer in any pay period or roster cycle to work in excess of:
(i) an average of X ordinary hours which would attract a penalty rate under this provisions of this award per week; or
(ii) an average of X overtime hours per week
without being entitled to an amount in excess of the annualised wage in accordance with clause X.1(c).
(c) If in a pay period or roster cycle an employee works any hours in excess of either of the outer limit amounts specified in clause X.1(b), such hours will not be covered by the annualised wage and must separately be paid for in accordance with the applicable provisions of this award.
(d) Where a written agreement for an annualised wage agreement is entered into, the agreement must specify:
(i) the annualised wage that is payable;
(ii) which of the provisions of this award will be satisfied by payment of the annualised wage;
(iii) the outer limit number of ordinary hours which would attract the payment of a penalty rate under the award and the outer limit number of overtime hours which the employee may be required to work in a pay period or roster cycle under clause X.1(b) without being entitled to an amount in excess of the annualised wage in accordance with clause X.1(c).
(e) The employer must give the employee a copy of the agreement and keep the agreement as a time and wages record.
(f) The agreement may be terminated:
(i) by the employer or the employee giving 12 months’ notice of termination, in writing, to the other party and the agreement ceasing to operate at the end of the notice period; or
(ii) at any time, by written agreement between the employer and the individual employee.
X.2 Annualised wage not to disadvantage employees
(a) The annualised wage must be no less than the amount the employee would have received under this award for the work performed over the year for which the wage is paid (or if the employment ceases or the agreement terminates earlier over such lesser period as has been worked).
(b) The employer must each 12 months from the commencement of the annualised wage arrangement or, within any 12 month period upon the termination of employment of the employee or termination of the agreement, calculate the amount of remuneration that would have been payable to the employee under the provisions of this award over the relevant period and compare it to the amount of the annualised wage actually paid to the employee. Where the latter amount is less than the former amount, the employer shall pay the employee the amount of the shortfall within 14 days.
(c) The employer must keep a record of the starting and finishing times of work, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement agreement for the purpose of undertaking the comparison required by clause X.2(b). This record must be signed by the employee, or acknowledged as correct in writing (including by electronic means) by the employee, each pay period or roster cycle.
X.3 Base rate of pay for employees on annualised wage arrangements
For the purposes of the NES, the base rate of pay of an employee receiving an annualised wage under this clause comprises the portion of the annualised wage equivalent to the relevant rate of pay in clause X - Minimum weekly wages and excludes any incentive-based payments, bonuses, loadings, monetary allowances, overtime and penalties.
The outstanding matter that a left to be determined is the outer limit; refer to the underlined text in the above model clause.
The outer limit represents the maximum number of hours an employee can work per week before attracting payment at overtime or penalty rates.
In December 2019, the FWC expressed its provisional view it would be appropriate to set the outer limit at:
- 16 hours per week where the work performed would attract penalty rates, and;
- 10 hours per week where the work performed would attract overtime rates.
In reply, the AHA submitted that:
- For hours attracting a penalty rate, 16 hours per week is insufficient considering the nature of the industry means employees are likely to work a significant portion of their hours during penalty periods including weeknights (between 7pm and 7am), weekends and public holidays. On this basis, the AHA submitted that 32 hours was a more practical and reasonable outer limit.
- Similarly, the AHA submitted that an outer limit ranging between 12 and 17 hours was a more appropriate outer-limit for overtime than the 10 hours initially proposed.
The AHA’s submission and the rationale for its position can be read HERE.
Where to next?
The QHA expects a decision on what the final outer limits will be made in late March / early April, with changes to clause 24 taking effect a couple of months later. Please note that final dates will only be known once a decision on the outer limits is made.
Other Proposed Changes to Clause 24
Clause 24 will be changed to include:
- A requirement that agreement to be paid a salary under clause 24 be recorded in writing;
- A requirement for this agreement to state the provisions (i.e. clauses) of the HIGA the salary is intended to cover;
- The ability for either party to terminate the agreement (and return to wages) with 12 months’ notice;
- A requirement for an employer to perform calculations every 12 months (or sooner if employment ends) to ensure each employee subject to such an agreement has been paid no less than what they would have been, based on their pattern of work, had the agreement never existed and correct any monetary shortfall in 14 days; and
- A requirement for detailed Time and Wages record to be kept, and signed/acknowledged as correct (including by electronic means) by the employee.
Preparing for Future Changes to Clause 24
The QHA will provide further information for members in relation to proposed changes to clause 24 as they come to light. In the meantime, we recommend members prepare by considering the following:
1. Does your payroll system have the capability to allow for electronic counter signing/acknowledgement of timesheet records as required under clause X.2(c) of the model clause? If not, ask your payroll provider if they can offer this tool, and;
2. If not already established, what process or method will be used internally to ensure the annualised salary paid to a particular employee has been the result of thorough mathematical calculations. What potential work pattern (e.g. amount of overtime and weekend work) has the salary been calculated on? It could be based, for example, on the timesheets of someone working in the position in the last 12 months, or projected work patterns if it is a totally new role. Don’t forget, it will be necessary for the salary to be at least 25% higher than the minimum weekly rate for the employee’s classification, but depending on the work pattern of the employee, an employer may need to consider a higher salary amount. This has already been the case under the existing clause 24 requirements, and;
3. Be prepared for a future requirement to reconcile and pay within 14 days any shortfall between a salary paid under clause 24, and what the employee would’ve received, had they not been on the salary, and;
Whether the business has reached written agreement with each employee as to which of the options for averaging of hours (as outlined in clause 15 of the HIGA) applies to them. Although an employee is not entitled to the benefit of the overtime clause whilst receiving a salary under clause 24, the averaging arrangement is central to the process of performing the abovementioned annual salary reconciliation calculations.
QHA members seeking more information or wishing to discuss a specific employment relations matter are encouraged to contact the Employment Relations Department for a confidential discussion by calling 07 3221 6999 or emailing email@example.com.