Retail, industrial and fast-food employers should confirm the correct award or agreement applies to each employee and document which entitlements the annualised salary covers. They must keep accurate records of hours worked and conduct a reconciliation at least every 12 months against the employee’s award entitlements. Any shortfall should be identified and paid promptly.
How can retail, industrial and fast-food employers use annualised salaries without risking employee underpayments?
Our Employment team discuss this important topic.
What is an annualised salary?
According to the Fair Work Ombudsman, an annualised salary is a fixed regular amount of pay over a year. This is an alternative to paying an employee hourly wage in a pay period.
Are annualised salaries still legal for retail, industrial and fast-food employers?
Yes. Employers outside agriculture can still pay staff an annualised salary instead of an hourly wage, either through a modern award’s own annualized wage arrangement clause, or through a common law all-inclusive salary with a properly drafted set-off clause. This is similar for pastoral and farming employers. Refer to the article on the Woolworths and Coles decision to learn more.
Two recent matters, the Wesfarmers Industrial and Safety underpayments and the Gall v Domino’s class action show exactly how annualised salary arrangements go wrong in practice, and why the Fair Work Commission tightened the rules for annualised wages in 2020.
This article reviews what happened in both cases, how the 2020 model clauses respond to that risk, and the practical steps retail, industrial and fast-food employers should be complying with.
Wesfarmers underpayment matter
Wesfarmers Limited, the $13 billion company revealed in 2019 that it underpaid 6000 employees in its industrial and safety business for nine years. It was also announced that Bunnings Warehouse (part of Wesfarmers’ home improvement business) had underpaid some part-time workers for eight years. That underpayment was traced to an error in the payment system, which meant that affected employees were not receiving superannuation on all the hours they had actually worked.
The Fair Work Ombudsman (FWO) used the moment to send a clear signal to the market that self-disclosure alone would no longer be treated as sufficient, and large businesses caught underpaying staff should expect real consequences rather than a soft response. Big businesses admitting to underpayments would at minimum be required to enter into court enforceable undertakings, involving multiple yearly external audits, staff training programmes. It was also noted by the FWO that litigation remained firmly on the table for any business failing to cooperate.
Gall v Domino’s Pizza Enterprises
This matter concerns a different, but related failure point, where it was not a payroll system error, but it was about a wrong pay instrument being applied across an entire franchise network.
In 2019, Phi Finney McDonald launched a class action against Domino’s on behalf of the lead applicant Riley Gall, a former Domino’s delivery driver for underpayment of wages under the Australian Consumer Law. It was alleged that Domino’s was directing its Australian franchisees to pay delivery drivers and in-store workers under the old enterprise bargaining agreements when some employees were properly covered by the Fast-Food Industry Award 2010. This means that they were entitled to better pay and conditions than those of in the enterprise agreements. This includes a 25% loading for casual workers, additional penalty rates for working overtime, on weekends and public holidays and minimum three-hour shifts.
The court found that Domino’s had engaged in misleading and deceptive conduct under the Australian Consumer Law in terms of the representations it made to the franchisees about which pay instrument applied. This case serves as a timely reminder for employers to pay their workers according to their entitlements under the applicable award or agreement.
Tying the 2 cases together
These 2 cases have different fact patterns but they both boil down to the same underlying problem. Wesfarmers shows what happens when a payroll system is not properly aligned with the entitlements of the respective awards, while Domino’s is about what happens when the wrong instrument is followed. These cases illustrate the importance of having a written agreement to clearly state the entitlements the salary is meant to cover, to record-keep and have an annual reconciliation that forces the comparison against actual award-covered hours before accruing unpaid wages for years. This is precisely the gap the 2020 model annualised wage clauses were introduced to close.
Legislative Background: What changed in the awards from 2020?
The Fair Work Commission (FWC) upon its four yearly review of modern awards has inserted new ‘annualised wage arrangement’ clauses. These new clauses replace annualised salary clauses that were already in place in 19 modern awards. Such awards include the Restaurant Industry Award, Hospitality Industry (General) Award, Clerks – Private Sector Award etc. If you’re not sure whether your award includes a specific annualised wage clause, you can check your industry’s rules on the Fair Work Ombudsman website.
Apart from that, these clauses were added into three other modern awards which did not previously have an annualised salary clause. These clauses replaced older, looser annualised salary provisions with much more prescriptive obligations as follows:
- written annualised wage arrangement which has to include the annual wage, award entitlements, calculation methods of annual wage, overtime hours or penalty-rate hours the salary is intended to cover.; and
- record-keeping of start and finishing times and unpaid breaks, in many cases requiring the employee to acknowledge or sign off on the record; and
- an annual reconciliation, at least every 12 months, comparing what the employee would have been paid under the award against what they were actually paid, with any shortfall paid within 14 days of it being identified.
These changes do not stop an employer from paying a common law all-inclusive salary under a contract with a set-off clause. However, even where employers do so, with the new changes, record-keeping and reconciliation against overtime and penalty rates remain critical in managing compliance risk.
The practical risk
Depending on the circumstances, employers and franchisors may face:
- Significant underpayment liabilities (tends to accumulate over many years before detection);
- Civil penalties under the Fair Work Act;
- Enforceable undertakings or litigation by the Fair Work Ombudsman;
- Misleading and deceptive conduct claims under the Australian Consumer Law;
- Class actions brought by employees or franchisees; and
- Significant reputational damage.
A checklist before you go
The Wesfarmers and Domino’s matters give retail, industrial and fast-food businesses a clear prompt to review their own work arrangements. Employers and franchisors should check the following:
- which modern award applies for the respective roles;
- if the payroll system is accurate, according to the entitlements of employees under the award or agreement;
- conduct a yearly check to compare what each salaried employee earned against what they would have been paid under the award for the hours worked, if there is a gap, pay it promptly;
- check for real records of hours worked (signed records of start and finish times, unpaid breaks)
Getting the right advice
If you are concerned about whether your business has been paying employees the right and just way and need more guidance regarding it, seek our employment team for more specialised advice.