Wage woes and underpayments: Why HR leaders must understand policy changes

Changes to employment conditions have seen a large number of companies face compliance action for law breaches

Wage woes and underpayments: Why HR leaders must understand policy changes

With a Commonwealth election looming by May 2022 at the latest, the major political parties are already unofficially campaigning and releasing policies. One issue already in motion is unions pushing for wage increases. This comes about for two reasons: firstly, employees have been suffering financial hardship in the past two years due to the global pandemic resulting in businesses either operating on reduced hours or permanently closing their doors and, secondly, due to breaches of big companies underpaying workers. 

“Australian employers, particularly those at the big end of town, are facing heightened compliance attention from the Fair Work Ombudsman,” Simon Ives, global head of HR transformation at Glencore, said. “Over the last couple of years there have been some small but substantial changes to almost all of the modern awards that govern employment conditions across Australia and the Ombudsman has been focused on ensuring compliance with these new changes.

“We’ve seen a large number of large organisations face compliance action from the Ombudsman for failing to comply with modern award conditions including Wesfarmers, Westpac, Woolworths, Coles, the Commonwealth Bank amongst others.”

Fair Work Ombudsman Sandra Parker made the comment late last year that the Ombudsman has, “continued to see some of Australia’s largest companies come forward to self-disclose workplace law breaches and our investigations have found many thousands of workers have been underpaid over many years. To address this, we have established a large corporates branch to support specialised investigations into corporate sector underpayments”.

Key changes – annualised wage arrangements

The updated rules for annualised wage arrangements came into effect on 1 March 2020. Employees not covered by a modern award are not covered by the rules for annualised wage arrangements. Each modern award embeds the annualised wage arrangement rules in a manner which suits the context of the applicable Modern Award.

How did these changes come about?

The full bench of the Fair Work Commission made a decision in 2018 regarding annualised wage arrangements to ensure that there should be a requirement for individual agreement to be reached with the relevant employee before an annualised salary arrangement is introduced in circumstances where the working hours of the employee are highly variable from one week to the next or over the course of a year.

The full bench also stated that in no circumstances should an annualised salary clause in a modern award permit or facilitate an employee receiving less pay over the course of a year than they would have received had the terms of the modern award been applied in the ordinary way, and it is essential that the clause contain a mechanism or combination of mechanisms to ensure that this does not happen. The Full Bench has identified three types of mechanism to ensure this:

  • A requirement for a minimum increment above the base rate of pay, prescribed in the annualised salaries clause itself, including an outer limit on the number of overtime or penalty rate hours which are compensated by the increment;
  • A requirement that the arrangement to identify the way the annualised salary is calculated; and
  • A requirement that the employer undertake an annual reconciliation or review exercise and be required to keep records of overtime and penalty rate hours.

“This led to a consultation period which formally evaluated submissions from a variety of unions and employer groups,” Ives said. “Following the consultation period, the Fair Work Commission determined to implement standard annualised wage arrangement rules across the various Modern Awards which subsequently came into effect on 1 March 2020 - noting that not all of the principles outlined in 2018 were implemented.”

Workers who are not covered by an enterprise agreement are not covered by a modern award. Such workers need to consult their relevant enterprise agreement regarding terms and conditions for annualised wage arrangements. Workers covered by a guarantee of annual earnings – a written agreement that allows an employer to pay an employee the high-income threshold or higher over 132 months or more – will not receive entitlements from a relevant award.

“Employers should ensure that their HR and leadership teams are completely familiar with the employment conditions within modern awards that apply to their operations,” Ives added. “It is quite easy for a leader or HR representative to continue to assume that older industrial relations practices still apply. For example, it is not uncommon in the resources industry for long-term leaders and HR professionals to still hold the view that salaried employees - those employees on an annualised wage arrangement – can work significant overtime, if required, and that overtime isn’t applicable.

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