The Impact for Hotels of the Recent Fair Work Commission Decision on Annualised Salaries

OWEN WEBB - AHA|SA WORKPLACE RELATIONS MANAGER

On 7 April 2022 a Full Bench of the Fair Work Commission (FWC) handed down their final decision in the Annualised Wage Arrangements matter (AM2016/13) in the 4 yearly review of modern awards. This decision results in some significant changes to the current annualised salary provisions in the Hospitality Industry (General) Award 2020 (HIGA) and Restaurant Industry Award 2020 (RIA).

In this article we look at what the changes are to the annualised salary provisions and what the impacts are for employers when employing salaried non-managerial staff in the future.

MODERN AWARD REVIEW

Since 1 January 2014, the FWC has been conducting a 4-yearly review of modern awards in accordance with Section 156 of the Fair Work Act 2009 (Cth). The review process requires the FWC to review all modern awards to ensure that they are achieving the modern awards objective.

In a decision of a Full Bench of the FWC in February 2018, the Bench determined that a broader review of all annualised salary terms in modern awards was necessary. The Bench also determined that there were inadequate safeguards in the current annualised salary provisions in the HIGA and the RIA and that these arrangements needed to be modified. The Bench invited submissions on a proposed Model Annualised Wage Arrangements Clause to be inserted into the HIGA and RIA.

After several years, including a 2-year unofficial deferral of the matter due to the COVID-19 pandemic and several submissions and hearings from interested parties, the matter has now been finalised by the FWC with a final decision issued on 7 April 2022.

So how do the current annualised salary provisions in the HIGA compare to the new provisions that will come into operation this year?

EXISTING ANNUALISED SALARY PROVISIONS – HIGA (CLAUSE 24)

The current annualised salary provisions in the HIGA (Clause 24), allow for an individual nonmanagerial employee and their employer to agree on an annualised salary which must be at least 25% more than the minimum weekly wage prescribed in clause 18 of the HIGA multiplied by 52 for the work being performed.

The annualised salary satisfies the requirement to pay overtime and penalty rates and any other monetary entitlements provided for in the HIGA by agreement. However despite the additional 25% payment, the annualised salary cannot result in an employee being paid any less over a year than would have been the case if an annualised salary had not been agreed and the employee had instead been paid their weekly rate and any other amounts satisfied by the annualised salary.

The existing annualised salary provisions also require the employee to have a minimum of 8 days off during each 4-week cycle of work, and if the employee works on a public holiday be provided with paid time off of equal length to the time worked on the public holiday.

The employer is also under the current arrangements required to keep a record of hours worked each day by the annualised salary employee.

NEW ANNUALISED SALARY ARRANGEMENTS HIGA – 1 SEPTEMBER 2022

The new annualised salary arrangements in the HIGA come into operation from the first full pay period on or after 1 September 2022 and they contain the following provisions.

Annualised salary instead of award provisions

In the same manner as the existing annualised salary clause, the new clause will allow an individual employee and their employer to enter into a written agreement for the payment of an annualised salary that is at least 25% more than the minimum weekly wage prescribed in clause 18 of the HIGA multiplied by 52 for the work being performed.

However the payment of the additional 25% in the new clause will satisfy more provisions of the award than the existing provisions. Unlike the existing provisions, the new clause will satisfy the requirement of the employer to have to pay annual leave loading if specified in the contract and also the requirements around additional public holiday arrangements for fulltime employees where an RDO and public holiday coincide.

Outer limit hours

The new annualised salary provisions will introduce a new concept of “outer limit” hours. The clause requires that an employee in any roster cycle cannot be required to work in excess of the “outer limit” hours otherwise they will be entitled to be paid an amount in excess of their annualised wage. The outer limit number of hours that can be rostered will be as follows:

• No more than an average of 18 ordinary hours which would otherwise attract a penalty rate under the HIGA (e.g. weekends, public holidays), excluding hours worked between 7.00pm to midnight; and or

• No more than an average of 12 overtime hours per week in excess of ordinary hours

If an employee worked outside of these outer limit hours, then they would be required to be paid such hours in accordance with the applicable HIGA provisions.

Written Agreement

The new clause will require the written salary agreement to specify:

• The annualised salary that is payable to the employee;

• Details of which of the provisions of the HIGA will be satisfied by payment of the annualised salary;

• The outer limit number of ordinary hours which may be worked by the employee that would attract the payment of a penalty rate under the HIGA and the outer limit number of overtime hours which the employee may be required to work in a roster cycle without being entitled to an amount in excess of the annualised wage.

Records of hours of work

The employer will need to keep a record of the employee’s starting and finishing times of work, and any unpaid breaks taken.

Termination of the Annualised salary agreement

Under the new clause the annualised salary agreement will be able to be terminated by the employer or employee by giving 12 months’ notice in writing or at any time by written agreement between the employer and the employee.

No Disadvantage

Whilst there is the requirement under the new clause to pay an additional 25% above the applicable minimum weekly wage as well as the setting of outer limit hours, there will still be a requirement under the new provisions to ensure that an employee under an annualised salary arrangement is not disadvantaged by payment of the annualised salary when compared to the remuneration that would have been payable to the employee under the provisions of the HIGA over the relevant period.

Wage Reconciliation

The new clause provides for a new requirement for the employer to compulsorily undertake a wage reconciliation. Each 12 months from the commencement of the annualised salary arrangement or, within any 12 month period upon the termination of employment of the employee or termination of the salary agreement, the employer must calculate the remuneration that would have been payable to the employee under the provisions of the HIGA over the relevant period and compare it to the amount of the annualised salary paid to the employee. Where there is any shortfall, the employer will need to pay the employee the amount of shortfall within 14 days.

Salaries – Managerial staff

The FWC decision on annualised salary arrangements has no impact on the salary arrangements for managerial staff. The current clause 18.2 - (Managerial staff (Hotels) and clause 25 - Salaries absorption (Managerial Staff (Hotels)) of the HIGA are not impacted at all from the decision and will continue to operate unchanged from their current form.

Restaurant Industry Award 2020 (RIA)

The new annualised salary clause to be inserted into the RIA will come into operation from the first full pay period on or after 1 September 2022, and the new clause mirrors the new annualised salary provisions in the HIGA.

RECOMMENDATIONS FOR EMPLOYERS

The new annualised salary arrangements once they commence in the HIGA and RIA will have an impact for employers in hotels and restaurants, particularly with their onboarding and rostering arrangements. So what are some of the recommendations for employers as a result of the introduction of these new arrangements from 1 September 2022.

1. When entering into an annualised salary arrangement, the employer should ensure that the salary being offered has been calculated by analysing the indicative roster the employee will be working and comparing the remuneration the full-time employee would be earning under the roster arrangement if they were not under a salary arrangement. It is one thing to pay the 25% above the applicable weekly minimum wage but that may not be enough when looking at the rostered hours the employee will work.

2. Ensure that the written contract of employment under the annualised salary arrangement clearly sets out:

a. what provisions of the Award will be satisfied by payment of the salary (e.g. penalty rates, overtime, leave loading), and

b. the maximum outer limit number of ordinary hours that may be required to be worked that would attract the payment of a penalty rate under the award and the maximum outer limit number of overtime hours which the employee may be required to work, without being entitled to any additional amount in excess of their weekly salary.

3. Given the new wage reconciliation requirements it will also be important for employers to maintain appropriate time keeping records and to closely monitor the hours the employee works to ensure that the risk of the employee being disadvantaged when compared to the renumeration they would have otherwise earned under the Award, is reduced.

The AHA|SA will be providing further information to Members in relation to this new salary arrangement clause for non-managerial staff between now and 1 September 2022. If any members have any questions, they can contact the Workplace Relations team at the AHA|SA office.