As we head into a new financial year, it’s an ideal time for small business owners to check that all pay arrangements, especially for employees covered by Modern Awards, are compliant, fair, and up to date. Beyond simply applying the new minimum/Award wage increases (refer here for details), there are three often-overlooked obligations that require annual attention to avoid underpayment risks and maintain good practice.
Annualised Salary Arrangements & Individual Flexibility Agreements (IFAs): Are They Still Compliant?
If you’re paying any of your employees under an annualised salary arrangement or have an Individual Flexibility Agreement (IFA) in place, you must:
- Ensure the employee remains better off overall compared to what they would otherwise earn under the applicable Award.
- Conduct regular (at least annual) reconciliations to compare actual earnings against Award entitlements, including overtime, penalties, and allowances.
- Keep accurate records of hours worked and any loading offsets.
- Notify employees in writing about the reconciliation and any top-ups owed if underpayments are identified.
Specific requirements apply under several Awards (e.g. Clerks, Hospitality, Health Professionals), and failing to review arrangements can lead to serious compliance issues.
If you’re unsure whether an IFA or annualised salary setup is still valid, now is the time to review!
Pay Point Progression: Don’t “Set and Forget”
Awards such as the Social, Community, Home Care and Disability Services Industry (SCHCADS) Award and the Clerks – Private Sector Award contain classification structures with built-in pay point progression. Employees will usually only move to a different classification level if they are promoted or are required to use additional skills. However, they may be entitled to automatically move to a different pay point within their current classification level (e.g. from Level 3 pay point 1, to Level 3, pay point 2).
Employees in Awards with built-in pay progression are typically entitled to progress to the next pay point after:
- 12 months of continuous service at their current pay point, and
- Demonstrating required competency or satisfactory performance.
Employers must track anniversary dates and assess whether progression criteria have been met. Overlooking this can result in underpayments.
If you’re unsure whether someone should have progressed to a higher pay point, review their classification history and duties performed. Of course, reach out if you need help.
Annual Check for Over-Award Payments: Still “Better Off Overall”?
Many employers pay staff “above Award” rates as a way to simplify payroll or attract talent. But just because you’re paying more per hour or offering an annualised salary doesn’t automatically mean you’re in the clear.
Each year, it’s important to:
- Compare total remuneration against what the employee would have received under full Award provisions, factoring in base pay, overtime, penalties, allowances, and loadings.
- Confirm that over-Award payments still result in a better-off overall position (BOOT).
- Adjust payments where necessary if it’s determined an employee’ has been underpaid and/or Award entitlements have increased such that they are no longer better off (e.g. due to general Award increases, or a reclassification of their role, or pay point progression).
Check relevant Awards for any specific requirements.
By way of example, under the Clerks (Private Sector) Award, to be compliant, employers paying an annualised salary must:
… each 12 months from the commencement of the annualised wage arrangement or upon the termination of employment of the employee, calculate the amount of remuneration that would have been payable to the employee under the provisions of this award over the relevant period and compare it to the amount of the annualised wage actually paid to the employee. Where the latter amount is less than the former amount, the employer shall pay the employee the amount of the shortfall within 14 days.
BONUS TIP: It’s also important to ensure that your employment contracts effectively account for any “absorption” of Award entitlements by virtue of over Award payments. Reach out if you need assistance.
What We Suggest You Do Next
To stay compliant and protect your business:
- Conduct a pay audit on all salaried staff and employees on IFAs (over and above checking to ensure other workers are at least paid the prevailing minimum rates for their classification)
- Check for eligibility for pay point progression under applicable Awards
- Reassess “above Award” arrangements to ensure they meet the BOOT (Better Off Overall Test), and check that contracts effectively represent above Award pay arrangements
- Document all findings and adjustments, and communicate clearly with your staff
- Seek professional advice if you’re unsure about rates of pay, classifications or pay structures.
Need a hand reviewing your Award obligations?
Get in touch: we can guide you through this process and help you manage the risks associated with non-compliance of Fair Work requirements.
This is general information which we believe to be correct at the time of posting. Information provided must not be considered professional or legal advice. If you’re an employer and need support that takes into account your particular circumstances, please contact us directly.
