The Pros & Cons Of An Annualised Salary

With everything going on in recent months, you may have missed the new obligations that were implemented with annualised salaries from March 1, 2020. They will have a significant impact on employers who pay annualised salaries to employees that are covered by various categories of modern awards. In our latest article here at Allsafe Insurance Brokers, we’ve put together an article explaining the changes, as well as the pros and cons of doing annualised salaries.

What is it?

Annualised salaries are payments made to your employees that are an ‘all-inclusive’ annual rate of pay. They’re intended to compensate employees for all entitlements including minimum rates, allowances, overtime, penalty rates, and annual leave loading. Essentially, the employee is paid the same amount each pay period.

What do the new requirements mean?

The employer is obligated to notify a full-time employee, in writing:

  • The annualised salary
  • Award provisions which are satisfied by payment of the annualised salary
  • Calculations of the annualised salary, including each separate component, including any overtime or penalty assumptions used in the calculation
  • Outer limits of ordinary hours, which would attract the payment of penalty rate under the award
  • Outer limits of overtime hours, which an employee may be required to work, without being entitled to an amount above the annualised salary

Note, if in a pay period an employee works any hours in excess of the outer limit, those hours will not be covered by the annualised salary and must be paid separately.

Pros of an annualised salary:

Provides a range of protections to prevent employee disadvantage with the new revisions
Consistency of every pay period, making it easier for the employee to anticipate their pay
The incentive to finish work within the normal span of working hours

Cons of an annualised salary:

The biggest downfall of adopting an annualised salary as an employer is the increase in administrative burden. With the new revisions, a system must be in place for the employee to clock in and out to keep as a record, inclusive of unpaid breaks and overtime hours for each pay period if the employee is on an annualised salary. The records must be signed or acknowledged as correct by the employee, for each pay period.

Every twelve months from the commencement of the arrangement, or on termination, the employer must calculate the amount of remuneration, which would have been payable to the employee under the provisions of the award and compare it to the amount of annualised salary actually paid to the employee.

If a shortfall is found, the employer must pay the outstanding amount within 14 days.

Historically, the prospect of annualised salaries was attractive due to the reduced amount of administrative burden associated with calculating overtime, penalties, and allowances in each pay period. So, it’s not unreasonable to say that the cost of satisfying these obligations, most particularly in relation to the record-keeping, defeats the purpose of employers adopting annualised salaries.

*Disclaimer, this document is intended to be a brief introductory guide and you should seek professional advice going forward.

If you have any insurance needs, feel free to call us today! Here at Allsafe Insurance Brokers – we have a team of experts who are ready to help!