“The changes to the Modern Award scheme have been felt by a large number of employers across a diverse array of industries.”
The changes to the Modern Award scheme, confirmed in September 2019 and taking effect throughout different stages of 2020, by the Fair Work Commission (the Commission) have been felt by a large number of employers across a diverse array of industries. This comes after a raft of underpayment scandals impacting high profile employers around Australia such as Woolworths’s underpayments of $390 million and George Calombaris’s MAdE Establishment underpaying $7.8 million. Some of the reasons highlighted for the significant underpayment of staff included incorrectly applying annualised salary arrangements and not paying staff at the correct award level. Thus, in reaction to those cases, the amendments were aimed at ensuring annualised salary employees were being paid at least at or above award rates instead of being underpaid in respect to overtime and penalty rates.
With the new changes to the Modern Award Scheme (the scheme), employers were required to amend employment contracts and adjust payroll and HR practices in accordance with the new changes. The key changes to the scheme included imposing strict requirements and regulations on employers for record keeping, employee notification and the constant review of the arrangement.
The first step in complying with the new obligations requires employers to keep particular records such as pay, leave, overtime, superannuation, and termination of employment records in accordance with Part 3-6, Division 3 of the Regulations. Regulation 3.33 highlights the certain pay records required to be kept by employers and regulation 3.34 requires keeping a record of the number of overtime hours worked, and the time the employee began and ended their overtime. These records assist in determining how the hours worked apply to the relevant award.
This becomes a real challenge for employers and adds to their responsibilities as it can be difficult to interpret the hours worked against the impacted scheme and subsequently award the correct amount. This has been slightly remedied by software companies such as Sage, creating products to assist with existing payroll programs to interpret the hours against the relevant award scheme and calculate the amounts against the employee’s annual salary.
As outlined by the Fair Work Commission, the employer or business has 14 days to remedy an underpayment or else they may face significant penalties under the Fair Work Act.
To make sure employers are compliant with the changes, they must inform employees of what their salary specifically includes such as the annualised salary rate, what it compensates for, and any overtime in excess that has to be paid. The obligation falls on employers to keep track of overtime and pay any additional rates despite employees not requesting the additional payment. This further adds to employer’s growing list of responsibilities.
For employers to guarantee they are continuously compliant with the scheme, they should undertake at least annual salary reviews, ensure clarity regarding what annualised salary mechanism is being used, and review records and record-keeping practices making sure proper systems are in place to ensure these requirements are met.
Despite the changes to the scheme being released since 2020, some businesses are still not aware of their new obligations due to common misconceptions held. These include employers believing they do not have employees covered by awards, relying on the Better Off Overall Test (BOOT), and believing added incentives constitute renumeration. In contrast to these held misconceptions, the vast majority of Australia’s workforce is covered by the scheme, applying the BOOT test to employees’ salaries is insufficient and may still result in non-compliance with the scheme, and finally added incentives cannot be used to determine an employee’s salary.
As these changes have been implemented quite recently, it is still difficult to determine what the potential long-term impacts may include. However, by way of inference the increased complexity in determining the correct award rates and compliance may result in an increased number of companies reporting miscalculations. However, this may potentially be remedied by the development of new technologies and software’s to assist businesses in determining the correct award rate. Despite the added complexity, these changes will potentially have a positive impact on employee’s rights to be paid correctly and ensure accurate documentation and records are kept in case of a dispute arising.
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