Court Redefines Annualised Salary Requirements

The Federal Court recently issued a judgment that has thrown into question the use of annualised salaries and offset clauses in employment contracts. In this case Woolworths and Coles were found to have underpaid staff over many years by using ineffective contractual clauses and not having kept the appropriate records of the hours that employees worked.

Many awards now provide for the provision of annualised salaries with employers using them to simplify payroll, employees being paid the same amount each pay period without taking into full account the actual hours or allowances for that period. The Court has determined that payments made for each pay period could only be set off against entitlements arising during that same period. That is ‘overpayments’ could not be set off against ‘underpayments’ in a past or future pay period. It is irrelevant that an employee may be ‘better off overall’ over the period of a year. The salary payments must be enough to cover entitlements each and every pay cycle.

The Court also determined that the record of hours must be accurate, not just records of start and finish times but the records must reflect what are ordinary hours and what are overtime hours.

This decision does not mean that all annualised salaries are not lawful. For instance, an annualised salary that states that it covers a certain number of weekly hours with hours above that being time off in lieu, the salary paid does cover the worked hours and the time off in lieu is provided to the employee at a later date to the value of the overtime, even though it is not in the same pay period as the overtime.

If you have a question about an annualised salary agreement you have in place please contact Andew for advice.