The Australian Fair Work Commission recently added new clauses to modern awards to cover new annualised salary award provisions. As a result, many businesses will need to update their payroll and HR practices to remain compliant. For employers, this means navigating the complexity of modern awards. Employers often make misunderstand or underestimate their obligations when it comes to award compliance.
Is your organisation’s reputation on the line?
To protect your brand, it is imperative that you comply with modern awards. If you do not comply with the legislation and meet your obligations, you risk reputational damage, which could result in lost business.
It is essential that you pay your employees the correct rates. To achieve this, you must identify the modern awards that apply to them. With the new annualised salary award provisions, you may face criminal sanctions if you underpay your employees. Underpaying employees includes applying the incorrect modern award or failing to provide the appropriate entitlements.
Modern Award Basics
Modern awards are complex. Managing them often is a challenging feat. They are legal documents, created by the Fair Work Commission (FWC), that specify employer and employee terms, as well as minimum pay rates. The conditions in an award vary depending on the employee classifications, skill level, and the industry. Each employee classification has a corresponding minimum wage that functions in combination with the National Employment Standards under the Fair Work legislation.
The introduction of 122 modern awards of general application saw the replacement of the State and Federal Awards. If you are a non-government employer, unless you have an enterprise agreement in place, a modern award covers all of your employees.
Modern awards include the terms and conditions of employment, which cover:
- Penalty rates –work conducted outside standard operation hours, such as on weekends and public holidays.
- Overtime rates – work a colleague does that is not within ordinary work hours.
- Allowances – paid when a team member does specific duties outside of work, this includes travel allowance.
- Break arrangements – specify when employees should take breaks and how long their breaks should be.
Modern awards change regularly, so you must stay up to date with the latest changes to remain compliant. The Fair Work Act outlines that the FWC must annually review minimum wages, and review the modern awards every four years. For this reason, you must monitor and review your employment practices continually to ensure they are compliant with the current modern awards.
Modern Award changes for Australian employers in 2020
Effective March 2020, the FWC finalised new annualised salary clauses for several modern awards.
The change is an attempt to reduce wage theft and non-compliance within HR and payroll teams and we have written about this on previous occasions in our own blog.
The aim is to ensure employees receive the right compensation for the work they perform. The vast majority of your team members, more than likely, do not effectively audit the annual salaries they receive every year, so the changes done to the modern award makes sure that their overall remuneration compensates for each award entitlement.
It is vital you review your employment contracts and update your HR practices to comply with the new requirements. These requirements include additional obligations to ensure you do not underpay your team by relying on annualised salary arrangements.
Fundamental changes include:
- Recording the number of hours your team members work.
- Auditing annual salaries.
- Ensuring you back-pay any shortfalls when the verification of yearly salaries against modern award entitlements takes place.
If your team includes clerical and administrative members, the likelihood of having to make amendments and adjustments to employment contracts and your payroll and HR practices is high.
However, the changes depend on which modern awards apply to your team. There are mandatory requirements if you pay your colleagues annual wages in line with specific modern award entitlements. For example, you must give your employees written notice of the calculation of yearly salaries and which provisions of the modern award are within the payment of an annualised wage. You must state the highest number of ordinary hours which results in the payment of a penalty rate. In addition, you must include the external limit number of overtime hours required by a team member in a pay period without entitlement to an amount above the annualised wage under the award. Lastly, it is best to stipulate excess hours of work not covered by the annualised salary. Here, separate payments under the award are applicable.
To ensure annual wages compensate your employees, you must implement accurate payroll and HR practices. These practices might include:
- Annual calculations of what you pay employees under the award compared with the annualised wage paid.
- Perform reconciliations and back-pay any shortfalls within fourteen days.
- Record start and finish times, in addition to unpaid breaks, of each employee subject to an annualised wage arrangement to perform the calculations and reconciliations.
- Always sign records in writing each pay period.
To comply, first establish which modern awards apply to your team, then make the necessary amendments to your team members contracts and adjust your HR and payroll practices.
Dangers of non-compliance
If you do not fully abide by the terms outlined in a modern award, you risk facing civil penalties under the Fair Work Act 2009. Even if you pay your team more than the minimum rate specified in a modern award, you still must adhere to all terms because underpayment claims and liabilities are always associated with risk. If your employee contracts do not state that the over-award payment complies with any modern award entitlements, you may face liabilities. It would be best if you also considered annual leave, and notice periods before a yearly shut down.
The most common areas of non-compliance are incorrect employee payments and failure to follow termination procedures. You can be held personally accountable for the actions within your company, including the actions of your HR and payroll officers. Your franchisors can be liable for breaches by franchisees. If you do not determine award coverage correctly, or if you assume there is not an award that covers individual employees, you may face significant back-pay claims, penalties and reputational risks.
Implications of Modern Award Coverage
It is essential to consider the impact of modern award coverage. Many employers struggle with the legislative and regulatory requirements that come with the hiring process. The role of modern awards is often misunderstood, with the majority of employers not fully considering the obligations that come with the modern awards. It can be challenging to determine if an award covers all of your team members, yet it is essential to know which awards apply so you can provide the correct terms and conditions to your staff.
Determining modern award coverage and incorrectly classifying an employee can create an array of problems, including high financial costs. If underpayment claims lead to an investigation by the Fair Work Ombudsman (FWO), you may face serious ramifications. These may include:
- Infringement notices.
- Back-paying underpaid employees.
- Legal proceedings and penalties.
- Negative media attention.
- Reputational and cultural damage.
When determining award coverage, you should note that a high remuneration level does not always indicate whether an award covers a role. Additionally, the job titles of your employees do not determine award coverage. Instead, it would help if you established which modern award applies by considering the duties they perform.
Therefore, it is essential to review whether you are applying the correct modern award or legislative tool to each of your employees. It is worthwhile seeking legal advice if you are unsure. Moreover, to cover the entitlements of all employees, you must conduct an audit of your hourly rates, penalty rates, overtime, loadings, applicable allowances, and annualised salaries. Always make sure that your team’s contracts of employment allow for the set-off of over-award payments and have adequate payroll systems in place to support their needs. By developing robust employment practices regarding record-keeping, payslip dissemination and employment contract administration, you can remain compliant and keep your brand safe. You must fulfil applicable awards terms and conditions to avoid adverse consequences.
Tambla has developed the ideal solution to what is becoming an increasingly complex problem that is under intense scrutiny right now. For companies using our solutions – we have built-in comparison and testing tools that, with some minor configuration, enable clients to run their own compliance comparisons.
For companies using third-party award interpretation tools we have developed a standalone solution – Tambla PayCE – that is provided as a service and takes a feed of data from your own systems and can provide BOOT, Payroll systems comparison and compliance reporting based on configurable intervals. No longer do you need to replace your existing investments – now you can supplement them with the capabilities you need to meet your compliance and reporting requirements.
At Tambla, we understand the importance of modern award compliance. We have the capabilities to provide you with accurate calculation and payment against all modern awards. To learn more about our award interpretation capabilities, please visit our website.