Last month saw a ruling in the case against Woolworths and Coles alleged underpayments.
While the lengthy ruling specifically related to the construction of the General Retail Industry Award, Justice Nye Perram’s ruling will have broad application as he made two very important findings which are likely to be read as to be applied across all Awards.
- That regardless of having annualised salaries, employers with employees covered by an Award must maintain accurate records of hours worked, overtime, weekend and public holiday penalties and entitlements, so that compliance with Award conditions can be readily verified.
Many employers who pay annual salaries do not require those salaried employees to complete timesheets. Even where you are satisfied that no issue would arise, best practice is for all employers to have all employees keep accurate timesheets, regardless of Award, salary, seniority or role. HR Staff n’ Stuff highly recommends that if you are not currently doing this, you should begin capturing all time worked by employees.
- The second major finding is that employers can’t use annualised salaries with a “set off” arrangement in place of calculating actual entitlements; meaning employers cannot trade off overpayments against underpayments across a year.
The Court said that such pooling or ‘annualisation’ of entitlements is not permissible under the Fair Work Act. Instead, it has ruled that overtime or penalties that are owed in one pay period must be paid in that pay period – an overpayment cannot be retrospectively or prospectively applied to absorb an underpayment. In other words, where the salary is not sufficient to meet award obligations for that pay period, an employer must pay the difference between the employee’s salary and the minimum award entitlements for that pay period,
This is a complete change from common application and interpretation of annualised salary payments, and how most employers across industries, awards and states, manage their annualised salaries and set off clauses. Traditionally the very purpose of an annualised salary was to give employees stable income on a regular basis and release the employer from having to conduct regular calculations – relying on the annualised salary to adequately compensate an employee across the whole year period.
Woolworths and Coles are expected to appeal, and this decision could be overturned or modified.
Accurate Timekeeping Is Now Essential
Given the broad ramifications of this change in the way annualised salaries and set off clauses need to be managed and the additional burden on employers, we are expecting there to be further information provided over the coming months on this matter. In the meantime, we recommend that you review your current salaries for annualised salaried employees and be confident that the salary you are paying would satisfy each separate pay period.
Remember when calculating award entitlements, you should use the relevant award rates or pay to assess the employee’s minimum entitlement, and not the employee’s actual hourly rate.
Example:
The employee is a real estate agent working at level 2 of the Real Estate Award. The award entitlement for this role is $28.12 per hour. Penalty rates at time and a half and double time are payable as $42.18 and $56.24 per hour respectively. If you are paying an employee $35 per hour for normal hours (an annual salary of $69,160), when they are entitled to be paid double time, they are entitled to be paid as a minimum $56.24 per hour NOT $70.00 per hour to meet the award entitlements.
Test:
This employee is paid monthly. One week he worked 5 hours of overtime. Under the award for that month, he would be entitled to earn:
$28.12 x 38 = $1068.56 per week
52 weeks x $1068.40 / 12 months = $4629.73per month PLUS overtime of: $253.08
(First 2 hours @ time and a half = $42.18 x 2 = $84.36 plus 3 hours @ double time of $56.24 = $168.72. Total overtime owed = $253.08)
Award entitlement for the month = $4883.51
Actual salary paid for the month is $5763.33
This employee is paid well above the award and has satisfied the overpayment in the specific pay period.
However, if the employee were paid just $29 per hour, or $57,304 per annum. Their monthly payment would be $4775.33, and the employer would be required to pay the employee an additional $108.18 in that pay period.
What Employers Should Do Now
We do expect more information to be forthcoming about this ruling, especially as some Awards specifically allow for payments to be assessed over a 12-month period, such as the Hospitality Award, and the potential for significant wage underpayments being identified across all industries in the event this ruling is accepted broadly. We will provide updates as they are known.
In the meantime, continue to apply Award provisions as read, and make sure you keep accurate records of all employees’ hours worked and maintain a level of confidence each pay period that your annualised salary is sufficient.
If you have any questions or need support on this matter, please don’t hesitate to contact one of our team. As always, we are here to help.
