Does your business or organisation pay an annual salary to employees who are covered by a modern award? If so, you should be aware that a number of modern awards will be updated from 1 March 2020 to include revised annualised salary provisions, which impose new obligations on employers.

What is an annualised salary?

Some modern awards currently contain provisions allowing employers to pay employees an annualised salary in satisfaction of specified monetary entitlements, including minimum wages, allowances, penalty rates, annual leave loading and overtime. Existing annualised salary provisions are relatively easy to follow and provide employers with a degree of flexibility when paying employees.

However, from 1 March, three new model annualised salary clauses will replace the existing provisions and will be inserted into certain awards that currently do not have annualised salary provisions. The new clauses are far more complex and onerous than the existing provisions. Some of the awards affected include the Clerks – Private Sector Award 2010, the Manufacturing and Associated Industries and Occupations Award 2010, and the Hospitality Industry (General) Award 2010.

The new requirements

Although the terms of each of the new model annualised salary clauses vary slightly, the key features of the new clauses are as follows:

  • Written Record: an employer is required to advise an employee in writing and keep a record of the amount of the annualised wage, the specific monetary entitlements that the annualised salary includes, the method by which the annualised salary has been calculated, and how many hours of overtime and penalty rates an employee may be required to work during a pay period or roster without being entitled to additional pay.
  • Additional Payment: any hours worked in excess of the overtime hours or penalty hours said to be included in the annual salary must be paid separately in accordance with the overtime and penalty rates specified in the modern award.
  • Annual Review: an employer must conduct a review every 12 months or upon termination of employment to ensure that the annualised salary is at least equal to or more favourable than the applicable monetary entitlements under the modern award. Any shortfall must be paid within 14 days.
  • Start and Finish Times: an employer must record an employee’s start and finish times, including unpaid breaks. This record must be signed by the employee weekly or every pay period or roster cycle (as the case may be).

Common law off-set clauses in employment contracts

Importantly, employers are not obliged to follow annualised salary provisions contained in modern awards and can instead rely on their own contractual arrangements (known as common law off-set clauses) to compensate employees for specified monetary entitlements under an applicable award. To be legally effective, these contractual provisions must be appropriately drafted and the relevant statutory record-keeping obligations must still be satisfied.

Implications for employers

Employers who use annualised salary arrangements for staff should urgently review their employment contracts, as well as their payroll and record-keeping systems, to ensure they will be in a position to fully satisfy their legal obligations from 1 March 2020. A failure to do so may expose the employer to a range of significant sanctions, including civil penalties of up to $63,000 per breach for corporations and orders for back-pay.


This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

For further information please contact Martin Alden, Partner (Employment, Workplace Relations & Safety) at; or telephone: +61 3 9608 2273.