From 1 September 2022, there are new annualised wage arrangement rules in the Hospitality Award and the Restaurant Award, following a decision made by the Fair Work Commission. These replace the previous annualised salary arrangement provisions in these awards.

The Fair Work Ombudsman (FWO) said key changes include rules about what award entitlements can be included in an annualised wage arrangement and new rules about the maximum number of hours that attract overtime or penalty rates that an employee can work in a roster cycle and be included in their annualised wage (called the ‘outer limits’).

It also includes what needs to be included in a written agreement for an annualised wage arrangement, extra record-keeping rules and new rules about ending an annualised wage arrangement.

These changes only apply to full-time employees covered by the Restaurant Award or the Hospitality Award, and don't apply to people employed as Managerial Staff (Hotels) under the Hospitality Award.

“Annualised wage arrangements enable employers to pay their employees fixed regular amounts every pay period by agreement, even when their employees’ hours fluctuate. This arrangement is different to employers paying their employees an annual salary under employment contracts,” the FWO said.

“There are rules around how to set and formalise an annualised wage for employees to have the benefit of an annualised wage arrangement, including the minimum amount employers have to pay.”

What  it means

Under the Restaurant Award and Hospitality Award, an annualised wage arrangement can include payment for minimum award rates for the employee’s classification level, split shift allowance, overtime, penalty rates and annual leave loading.

When an annualised wage arrangement includes payment for these entitlements, there is generally no need to calculate and pay for those entitlements in each individual pay period.

In any roster cycle, an annual wage can only cover an employee working up to a weekly average of 18 penalty rate hours (excluding time worked between 10pm and midnight, Monday to Friday) and 12 overtime hours. 

“These are called the ‘outer limits’. Sometimes an employee will work more than these hours over a roster cycle. These extra hours aren’t covered by the annual wage,” the FWO added.

“Instead, an employer needs to pay these extra hours at the employee’s minimum hourly rate, plus any penalty or overtime rate on top of their regular wage for that pay period.”

Any other entitlements not covered by the annual wage must also be paid separately.

To avoid owing large shortfalls to employees, the FWO recommended it was a good idea for employers to set an annualised wage at a level that will cover what their employees would have been entitled to be paid under their award over the year by considering their employees’ work pattern and other relevant factors (such as busy periods).

The Restaurant Award and the Hospitality Award also now include extra record-keeping requirements. Employers need to follow these new rules when paying their employees an annualised wage.

Employers still need to comply with other record keeping and payslip requirements under the Fair Work Act.

An annualised wage arrangement has to be agreed to in writing by an employee and employer. At a minimum, employers need to keep a written record of the arrangement as a time and wages record and give their employee a copy of the annualised wage arrangement.

The FWO said employers also need to review and reconcile annualised wage arrangements at least every 12 months after the arrangement started, when the arrangement ends, and when employment ends.

This is to make sure their employees get at least the minimum amounts they’d otherwise be entitled to for their work over the year.

“Sometimes, an annualised wage arrangement may result in an employee getting paid less than what they would normally be entitled to for their work under the award. If an employer finds that they haven’t paid their employee enough over the year, they need to pay the employee the shortfall within 14 days of completing the reconciliation,” the FWO explained.

“Reviewing these records throughout the year will make it easier to avoid mistakes and underpayments when it's time for the annual review and reconciliation of the annual wage arrangements.”

Under the new rules, employees and employers can end an annualised wage arrangement at any time, by agreeing in writing that the arrangement is ending and by giving the other party 12 months’ written notice that the arrangement is ending.