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Paying your employees annual salaries? Read this.

I have previously written (many times) about the incredible complexity of Australia's workplace relations laws, and the difficulty many employers encounter interpreting and applying the 122 Modern Awards to their own employees.

More often than not, employers tell me they ignore the applicable Modern Award because they 'pay employees a salary which includes all the Award entitlements'. When I then try to explain just how risky this approach is under Australia's unique Fair Work system, many employers assume we're exaggerating the danger.

I accordingly encourage those same employers to read the recent decision of the WA Industrial Court in Simone Jade Stewart v Next Residential Pty Ltd. 

In this case, the employee was covered by the Clerks-Private Sector Award 2010, and paid an annual salary of $78,000. The employer had issued the employee with a contract which confirmed the salary was intended to include all entitlements which might otherwise be payable under an applicable Modern Award. 

The highest classification level for a traditional clerical employee under this particular Award is 'Level 5', with a corresponding minimum weekly wage of $904. This equates to an annual salary of $47,008. 

So, if we exclude annual loading and any penalty or overtime rates which might apply, the employee in this case was being paid a salary which was almost $31,000 more than their minimum legal entitlement. All good, right? 

Wrong. Because the employee has been given permission to pursue the employer for alleged underpayments.

As our team has been telling employers for more than six years now, paying an Award-covered employee an annualised salary is inherently risky, in part because many Awards impose very strict rules about annualised salaries.

In this case, clause 17.1 of the applicable Award states (my emphasis added):

(a) An employer may pay an employee an annual salary in satisfaction of any or all of the following provisions of the award: 

(i) clause 16-Minimum weekly wages; 

(ii) clause 19-Allowances; 

(iii) clauses 27 and 28-Overtime and penalty rates; and 

iv) clause 29.3-Annual leave loading. 

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. 

Given the wording inserted in the employee's contract here, it's clear the employer failed to comply with clause 17.1 of this Award. As a result of this serious breach - and despite the employee being paid at least $31,000 more than the Award wage -  the WA Industrial Relations Court has given the employee permission to pursue an underpayment of wages claim relating to overtime and meal breaks. 

Still think we're exaggerating the risks created by non-compliance with Awards? We hate to say we told you so, but …

Published: Wednesday, November 09, 2016

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