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The Fair Work Commission (‘FWC’) has recently handed down a significant decision which will change the way that annual salaries operate in the Restaurant and Hospitality Awards.

The changes will come into effect on 1 September 2022.

Under both awards there is currently an ability to pay an annual salary of at least 125% of the minimum weekly wage set by the award, in satisfaction of overtime and penalty rate entitlements. An employer must then perform an annual “reconciliation” to ensure that the salary paid to the employee over the year is sufficient to meet entitlements as if they had been paid by the hour, strictly in accordance with the award. If there is a shortfall owing to the employee, this must be put right.

In essence, this allows an employer to pay a fixed rate in each pay period, and then to address any additional payments at the end of each year of employment.

The changes that will come into effect in September will for the first time introduce the concept of an “outer limit” of 18 penalty-rate-hours or 12 overtime-rate-hours that can be worked during a week. For any work performed in excess of this, the employer will have to pay the employee for this work at the time they performed the worked.

There is an exception for hours worked between 10pm and midnight in the Restaurant Award, and for hours worked between 7pm and midnight in the Hospitality Award.

In other words, it will no longer be possible just to pay a fixed annual salary and then make good any shortfall between the salary and the hours actually worked at the end of each year. “Top up” payments throughout the year will be necessary for any employees who work hours over and above the weekly outer limits.

We deal with changes to the Restaurant Award first, before turning to the Hospitality Award.

 

How do annual salaries currently work in the Restaurant Award?

Clause 20 of the Restaurant Award currently allows an employer and an employee to agree that a full-time or part-time employee will be paid an annual salary at the rate of at least 125% above the applicable minimum rate set out in the award, which will then satisfy the requirement to pay penalty rates (such as when an employee works in the evening, or on the weekend) and overtime rates (such as when an employee works over 38 ordinary hours in a week).

It should be noted that the 125% uplift does not avoid the obligation for an employer to pay allowances (such as split-shift allowance, etc) or to pay annual leave loading (in contrast to the Hospitality Award). These amounts must still be paid in addition to the uplifted annual salary.

There are also requirements for employees paid an annual salary to have a minimum of 8 days off duty during each 4 week cycle of work, and when they work on a public holiday, to be given paid time off of equal length to the time worked on the public holiday.

A record of all hours worked must be kept by the employer and countersigned by the employee each week. If the annual salary paid to the employee is not sufficient to meet all the entitlements the employee is entitled to under the award over the year (including overtime and penalty rates for actual hours worked), then the employer must pay the employee the difference.

Similarly, if the employee’s employment ends part way through the year, a reconciliation and payment of any shortfall must be performed at this time.

An employee who often works hours attracting penalty rates or overtime rates will therefore be entitled to an “extra” payment over and above their annual salary each year as a result of the reconciliation.

 

How will annual salaries work in the Restaurant Award from 1 September 2022?

The wording of the new clause will now include references to payments for split shift allowances and annual leave loading as being capable of being included in the salary, as well as overtime and penalty rates.

Further, and as noted above, there will now be a requirement to pay employees at the time they perform the work for work in a roster cycle in excess of:

  • an average of 18 ordinary hours which would attract a penalty rate per week, excluding any hours worked from 10.00pm to midnight; or
  • an average of 12 overtime hours per week in excess of ordinary hours

As is the case now, the maximum roster cycle is four weeks.

Details of these “outer limits” must also be included in the written annualised wage arrangement.

An employee (or an employer) will be entitled to terminate an annualised wage arrangement by providing 12 months’ notice (or at any time by agreement), the consequence of which will be that the employee will have to be paid strictly in accordance with the award for each hour worked.

The requirements regarding keeping records of hours worked (counter signed by employees) will remain virtually the same (although now unpaid break times will also have to be recorded).

Similarly, the requirements regarding performing a comparison of the salary paid versus the entitlements under the award (both annually and when the employment ends) remain unchanged.

 

How do annual salaries currently work in the Hospitality Award?

There are two separate provisions dealing with annual salaries in the Hospitality Award.

Managerial Staff (Hotels)

One set of provisions only deals with employees classified as “Managerial Staff (Hotels)”, i.e., those who:

  • under the direction of senior management are required to manage and co-ordinate the activities of a relevant area or areas of the hotel; and
  • direct staff to ensure they carry out their duties in the relevant area or areas of the hotel; and
  • implement policies, procedures and operating systems for the hotel

(See Schedule A.2.9).

The annual salary provisions for these employees allows an employer to choose (the employee does not have to agree) to pay an annual salary of at least 125% of the minimum annual salary for employees at this level.

The effect of doing so will mean that the employee is not entitled to the benefits in the following clauses in the award:

  • Clause 10—Part-time employees;
  • Clause 15—Ordinary hours of work and rostering arrangements
  • Clause 16—Breaks;
  • Clause 26—Allowances;
  • Clause 28—Overtime;
  • Clause 29—Penalty rates;
  • Clause 30.3—Payment for annual leave loading;
  • Clause 35.3—Additional public holiday arrangements for full-time employees;
  • Clause 37—Deductions for provision of employee accommodation and meals.

Managerial Staff (Hotels) employees are still entitled to a minimum of 8 days off duty during each 4 week cycle of work, and if they are required to work on a public holiday, are entitled to paid time off of equal length to the time worked on the public holiday.

There is no requirement for a Managerial Staff (Hotels) employee to countersign a record of the hours they week, nor is there any obligation to compare their annual salary with the entitlement had they been paid by the hour under the award or to make good the shortfall.

Provisions for Managerial Staff (Hotels) are not being amended by the FWC and will remain unchanged going forward.

Employees other than Managerial Staff (Hotels)

For employees other than Managerial Staff (Hotels) the annual salary provisions in the Hospitality Award currently operate in a very similar way to the Restaurant Award in that:

  • Full-time and part-time employees may agree to be paid a salary that is 125% above the minimum weekly rate set out in the award.
  • By agreement this can cover all monetary entitlements that arise under the award (although contrast the situation regarding annual leave loading and allowances as currently provided for in the Restaurant Award).
  • There are also requirements for employees to have a minimum of 8 days off duty during each 4 week cycle of work, and when they work on a public holiday, to be entitled to paid time off of equal length to the time worked on the public holiday.
  • A record of all hours worked must be kept by the employer and countersigned by the employee each week. If the annual salary paid to the employee is not sufficient to meet all the entitlements the employee is entitled to under the award over the year (including overtime and penalty rates for actual hours worked), then the employer must pay the employee the difference.
  • The same obligation to make good any shortfalls also arises if an employee’s employment ends during the year.
  • An employee who often works hours attracting penalty rates or overtime rates will therefore be entitled to an “extra” payment over and above their annual salary each year as a result of the reconciliation.

 

How will annual salaries work in the Hospitality Award from 1 September 2022?

As noted above, for Managerial Staff (Hotels) nothing is changing.

However, for other staff, changes are being introduced similar to those which are being introduced into the Restaurant Award, i.e.:

There will be a requirement to pay employees at the time they perform the work for work in a roster cycle in excess of:

  • an average of 18 ordinary hours which would attract a penalty rate per week, excluding any hours worked from 7:00pm to midnight (under the Restaurant Award it is from 10:00pm to midnight); or
  • an average of 12 overtime hours per week in excess of ordinary hours

As is the case now, the maximum roster cycle is four weeks.

Details of these “outer limits” must also be included in the written annualised wage arrangement.

An employee (or an employer) will be entitled to terminate an annualised wage arrangement by providing 12 months’ notice (or at any time by agreement), the consequence of which will be that the employee will have to be paid strictly in accordance with the award for each hour worked.

The requirements regarding keeping records of hours worked (counter signed by employees) will remain virtually the same (although now unpaid break times will also have to be recorded).

Similarly, the requirements regarding performing a comparison of the salary paid versus the entitlements under the award (both annually and when the employment ends) remain unchanged.

 

Other Matters

The FWC has published draft determinations of what the new clauses in the awards will look like, any comments in relation to can be made within 14 days. The draft determinations are available here.

The FWC also decided to make changes in respect of the annual salary arrangements in the Marine Towage Award and the Health Professionals and Support Services Award which we will provide further guidance on shortly.

It will generally still be possible to pay an annual salary in reliance in a contractual offset clause, or via an individual flexibility arrangement (IFA), but professional advice should always be sought.

 

Need further help?

If you need further help on any of the matters raised in this article please contact EI Legal.

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