Annualised wage arrangements (“AWA”) are a method of remuneration enabling employers to pay employees a fixed amount each pay cycle regardless of any variation to an employee’s hours of work. AWAs may be preferred as an alternative to paying traditional hourly wages, since they simplify payrolls by being inclusive of entitlements such as overtime and penalty rates, and also assist with financial forecasting by regularising employees’ earnings between pay cycles.

1. Not all employees are eligible

Eligibility for AWAs will be determined by the terms of a relevant modern award or enterprise agreement. While not all modern awards or enterprise agreements provide for AWAs, many do including the Banking, Finance and Insurance Award 2020, Telecommunications Services Award 2020, Clerks—Private Sector Award 2020 and Restaurant Industry Award 2020. Where a modern award or enterprise agreement allows an employer to enter into AWAs with employees, this is generally limited to full-time employees.

2. One size does not fit all

Employers must consider each AWA on an individual basis to determine if it is the right option for a particular employee. If an AWA is entered into, it must be in writing and must specify:

• the annualised wage that is payable (which may be, for example, 25% above the specified minimum wage for the employee’s classification in the modern award);
• the provisions of the modern award or enterprise agreement that will be satisfied by paying the annualised wage; and
• the maximum number of penalty and overtime hours included in the AWA before the employee is paid an additional amount.

The work patterns of each employee should be considered before entering into an AWA, particularly because only a certain number of penalty rates and overtime hours can be included in an AWA. Employers need to be aware that AWAs are not a “one size fits all” solution and carefully consider if an AWA suits the working arrangements for a particular employee. For example, if an employee is working a significant number of penalty rate hours and overtime hours then these will need to recorded, calculated and paid each pay cycle in any event, and the administrative benefits of an AWA will be reduced.

3. What’s in and what’s out

AWAs are ordinarily calculated by multiplying an employee’s weekly minimum wage by 52 weeks and then adding a premium to compensate for separate entitlements. The specific entitlements that can be included in an AWA will depend on the terms of the modern award or enterprise agreement, but these ordinarily include allowances, overtime, penalty rates, annual leave loading and public holiday arrangements.

Importantly, employees can not be paid less under an AWA than they would have been paid over the year if their entitlements were calculated and paid separately.

4. It’s not just set and forget

AWAs are often attractive since they offer a relatively simple payroll calculation which can be determined upfront. However, employers have record keeping requirements and are required to undertake yearly reconciliations to ensure employees are being paid at least the amount that they would be entitled to under a modern award or enterprise agreement.

If an annual reconciliation shows an underpayment, then an employer must pay an employee the difference within 14 days.

Employers are also required to keep records of individual employees’ start times, unpaid breaks and finishing times. Records must be acknowledged by the employee and should be kept for a minimum of seven years, including for former employees.

5. Wage theft has been criminalised

As we discussed in our recent article here, intentional underpayments now have criminal consequences. Because of the potential for underpayments, employers using AWAs need to ensure that they keep appropriate records and conduct reconciliations to ensure any underpayment is rectified to avoid civil and criminal prosecution.

For employers, it is important to be aware of some of the key issues before implementing an AWA – employers must be aware of the specific modern award or enterprise agreement requirements, ensure employee agreement is obtained, diligently keep records and ensure underpayments do not occur by conducting annual reconciliations. Employers considering implementing an AWA need to have a clear understanding of the upside.

PCS can help navigate whether AWAs would be appropriate for your organisation.