Date: March 6, 2018
The Fair Work Commission is examining annualised salary arrangements in modern awards as part of its 4 yearly modern awards review.
On 20 February 2018, a Full Bench of the Fair Work Commission handed down an interim decision in relation to modern awards and annualised salary arrangements, being Annualised Wage Arrangements  FWCFB 154 (Annualised Pay Case).
The 19 modern awards which currently contain annualised salary clauses are below:
- Banking, Finance and Insurance Award 2010
- Broadcasting and Recorded Entertainment Award 2010
- Clerks – Private Sector Award 2010
- Contract Call Centres Award 2010
- Hospitality Industry (General) Award 2010
- Hydrocarbons Industry (Upstream) Award 2010
- Legal Services Award 2010
- Local Government Industry Award 2010
- Manufacturing and Associated Industries and Occupations Award 2010
- Marine Towage Award 2010
- Mining Industry Award 2010
- Oil Refining and Manufacturing Award 2010
- Pharmacy Industry Award 2010
- Rail Industry Award 2010
- Restaurant Industry Award 2010
- Salt Industry Award 2010
- Telecommunications Services Award 2010
- Water Industry Award 2010
- Wool Storage, Sampling and Testing Award 2010.
In connection with the 4 yearly review of modern awards, the National Farmers’ Federation (NFF) made an application for the insertion of an annualised salary arrangement clause in the Pastoral Award 2010 and this triggered a broader review of whether other modern awards which do not currently contain any such provision should also include these terms.
The Full Bench said that the task will require it to consider a number of specific applications to either vary existing annualised salary arrangement provisions or to add new annualised salary arrangement provisions, and also to review the existing provisions generally.
The NFF also sought to include annualised salary clauses in the Horticultural Award. The Australian Services Union (ASU) sought to vary the existing annualised salary clauses in the Clerks – Private Sector Award 2010, the Legal Services Award 2010 and the Contract Call Centres Award 2010. These awards currently contain annualised salary clauses that are essentially in the same form. Further applications were made by other bodies to include an annualised salary clause in the Health Professionals and Support Services Award 2010 and to amend the existing annualised salary clauses in the Hospitality Industry (General) Award 2010, the Restaurant Industry Award 2010 and the Rail Industry Award.
In relation to annualised salary arrangements generally, the Full Bench said as follows [at para 102]:
Of course it is not necessary to have an annualised wage provision in a modern award in order for an employer to be able to pay an employee to whom the award applies an annualised salary that compensates for or “buys out” various identified award entitlements.
The principles by which this might be done were stated in the Federal Court Full Court decision in Poletti v Ecob  FCA 492 and subsequently affirmed in the Full Court decisions in Australia and New Zealand Banking Group Limited v Finance Sector Union of Australia  FCA 1785 (ANZ and FSU Case) and Linkhill Pty Ltd v Director, Office of the Fair Work Building Industry Inspectorate  FCAFC 99.
In short, under a contract of employment the employer and employee may agree that the salary payable under the contract has the purpose of satisfying the obligation to pay identified award entitlements (such as, for example, base wages, overtime rates, shifts and weekend penalty rates, allowances and annual leave loading). The payment of salary pursuant to such a contract of employment may be relied upon by the employer as satisfying in part or whole any claim by the employee for under-payment of the identified award entitlements.
However this means of paying an annualised wage to an employee to whom a modern award applies is not entirely free from legal difficulty. If there is a lack of a “close correlation between the nature of the contractual obligation and the nature of the award obligations”, then payment of the salary may not satisfy the relevant award entitlements [ANZ and FSU Case at para 52].
Further, the fact that an annual salary provided for in a contract of employment may, over the course of a year, equal or exceed identified award entitlements such as to discharge payment of them may, arguably, not amount to compliance with an award requirement that pay entitlements are required to be made to the employee within a specified pay period. Issues such as these may make the payment of a salary pursuant to an annualised wages provision in a modern award a more desirable and legally certain option.
The matter before the Full Bench has not yet been finally determined. The Full Bench proposed a number of model annualised salary clauses and invited interested parties to make further submissions concerning whether:
(1) the terms of the [proposed] provisions are appropriate to be adopted as model annualised wage arrangement provisions;
(2) any existing annualised wage arrangement provision in a modern award should be varied to reflect any of the proposed model terms (subject to the conclusions [stated in the decision] concerning the specific claims advanced in these proceedings);
(3) any modern award which does not currently contain an annualised wage arrangement should be varied to include one of the proposed model clauses; and
(4) annualised wage provisions are capable of having any practical application to part-time employees (including any proposals to that end) [at para 134].
Any submissions should be lodged with the Fair Work Commission by 20 March 2018.
Our earlier Legal Update published on 24 October 2016 explored annualised salary arrangements in light of a decision of the Western Australian Industrial Relations Commission concerning the Clerks – Private Sector Award 2010: http://www.whitehallworkplacelaw.com.au/annualised-salary-arrangements-and-compliance-with-modern-awards/
Employers utilising annualised salary arrangements should be aware of any relevant modern award provision and ensure that annualised salary clauses in contracts of employment are sufficiently precise and compliant with any annualised salary clause in the relevant modern award.
Whitehall Workplace Law
Level 14, 330 Collins Street, Melbourne, VIC 3000