Paying An Annual Salary? You Could Be Underpaying Your Staff

Many employers in Australia pay employees an annual salary. It is common for these employees to have a contract of employment that states any remuneration paid will be specifically applied to offset any entitlements under an award or other industrial instrument.

However, we have seen time and time again, employers having to make significant back payments to employees as the salaries they pay are not equal to or above the entitlements the employee would receive, had they been paid under a modern award or other industrial instrument (e.g. Enterprise Bargaining Agreement).

Hamilton Island Enterprises Ltd has recently signed an undertaking, requiring them to backpay $28.1 million to staff, which includes $6 million in interest and half a million in superannuation. The undertaking also includes provisions regarding mandatory training and audits for the employer.

This is not the first employer to be caught out paying annual salaries. The Fair Work Ombudsman has stated “Businesses paying annual salaries cannot take a ‘set and forget’ approach to paying their workers. Employers must ensure wages being paid are sufficient to cover all minimum lawful entitlements for the hours their employees are actually working”.

The key takeaways:

Ensure you know what award/s apply at your workplace. You cannot choose whether or not an award applies.
Identify the applicable classification for each employee under that modern award. This will show you their minimum hourly rate.
Using the employee’s hours of work, determine any entitlement to penalty rates, overtime and allowances under the award.
Compare this to the employee’s annual salary to ensure they are being paid correctly.
Review this when there are any changes to an employee’s hours of work or when a wage increase occurs (1 July each year).

Need help identifying award coverage, minimum rates of pay or annual salaries? Contact us at The HR Impact.