New Salary Arrangements – A Real Case Study

Having employees paid under various awards and conditions can make correctly paying your employees challenging, especially when overtime is commonly paid.

We recently assisted a client in analysing and updating their payroll structure with several employees by making use of the annualised salary provisions. Sometimes the best way to learn is to follow a great example. Read more about their journey with our case study written by Business Advisor Cathy Faulkner.

Here is a summary of where the client was, and how the new arrangement with the employee was agreed:

Previous employment and payroll position:

• The employee in question is employed on a full-time permanent basis under the applicable award.
• Work was seasonal and large amounts of overtime was required to be worked at peak times of the year.
• The employee held a First Aid Certificate and had been appointed by the employer to perform First Aid duties.

The hourly rate paid was above the award and the number of hours worked (and the specific days worked) were recorded on a daily basis.

At all times, the employer believed the employee was being paid fairly, but upon detailed calculations it became clear that at peak times, the employee’s overtime hours were not being adequately rewarded. This was especially so where the employee worked Sundays or over 12 hours in any given day.

As soon as this situation was uncovered, the employer advised the employee of the issue and paid the wages shortfall.

New payroll position – annual salary:

We worked with the employer to implement an annual salary arrangement for this employee. This new arrangement means that both parties have clarity around expectations of standard salary. The employee’s salary is now all-inclusive and covers the employee’s standard pay, reasonable overtime and penalties, and applicable allowances. He now receives a minimum regular amount of salary each week.

To identify the appropriate structure for an annualised salary, an understanding of the minimum amount the employee earned in the prior year was obtained. The employer then met with the employee to discuss his current pay structure and to propose a variation to his payroll to an annualised salary.

Both parties agreed, with that agreement specifying:

• Arrangements for when work is performed;
• The annual salary, which includes standard hours, reasonable overtime hours, and any applicable award allowances;
• The expectation that hours worked over and above reasonable would have penalties apply;
• Annual leave loading.

The employer and employee signed off on these terms in a written agreement.

In accordance with the award and with the new annualised salary provisions (Fair Work) the employer is aware of his obligations so that:

• Records are kept daily of hours worked (start and finish times, and unpaid breaks). These records are to be signed off by the employee on a weekly basis;
• Yearly calculations will compare the annual salary paid to the amount which would have been earned under the award;
• Any shortfall created by the new annualised salary as compared to the award will be repaid as soon as it becomes apparent.

As part of this process, we assisted the client to implement an employee management application (that links to the employer’s Xero file) that tracks hours worked electronically (logins are through mobile phones), which feeds through to the payroll system. This means that the data required to compare award wages with annualised salaries is provided by the system.

We have also helped the client re-set its payroll system to allow for this annualised agreement. The new provisions provide protection to the employee as they move away from hourly payroll, but also ensures the employer understands what must be done to comply.

If you would like to know more about how we can ensure your annualised salary provisions are met, please call our office on (08) 8172 1444 or email our friendly team.