From 1 September 2022, annualised wage arrangements in the following awards are changing:
- Restaurant Award
- Hospitality Award
You may know these arrangements as annualised salaries. Read on for more information.
We're holding a free webinar to help you understand the changes to annualised wage arrangements in the Restaurant Award and Hospitality Award. Join us on Thursday August 25 from 2pm to 2:30pm AEST. Visit our webinars page to register.
What's changing?
From 1 September 2022, there are new annualised wage arrangement rules in the Hospitality Award and the Restaurant Award, following a decision made by the Fair Work Commission. These replace the previous annualised salary arrangement provisions in these awards.
Key changes include:
- rules about what award entitlements can be included in an annualised wage arrangement
- new rules about the maximum number of hours that attract overtime or penalty rates that an employee can work in a roster cycle and be included in their annualised wage (called the 'outer limits')
- what needs to be included in a written agreement for an annualised wage arrangement
- extra record-keeping rules
- new rules about ending an annualised wage arrangement.
These changes:
- only apply to full-time employees covered by the Restaurant Award or the Hospitality Award
- don't apply to people employed as Managerial Staff (Hotels) under the Hospitality Award.
If these changes don't apply to you, you can read our general information about Annualised salaries.
Annualised wage arrangements - overview
Annualised wage arrangements enable employers to pay their employees fixed regular amounts every pay period by agreement, even when their employees' hours fluctuate. This arrangement is different to employers paying their employees an annual salary under employment contracts.
There are rules around how to set and formalise an annualised wage for employees to have the benefit of an annualised wage arrangement, including the minimum amount employers have to pay. Read on for more information and resources to help you make and maintain annualised salary arrangements under the Restaurant Award or Hospitality Award.
Restaurant Award minimum annual wage - what can be included
Under the Restaurant Award, an annualised wage arrangement can include payment for:
- minimum award rates for the employee's classification level
- split shift allowance
- overtime
- penalty rates
- annual leave loading.
When an annualised wage arrangement includes payment for these entitlements there is generally no need to calculate and pay for those entitlements in each individual pay period.
Additional payments
In any roster cycle, an annual wage can only cover an employee working up to a weekly average of:
- 18 penalty rate hours (excluding time worked between 10.00pm and midnight, Monday to Friday)
- 12 overtime hours.
These are called the 'outer limits'. Sometimes an employee will work more than these hours over a roster cycle. These extra hours aren't covered by the annual wage. Instead, an employer needs to pay these extra hours at the employee's minimum hourly rate, plus any penalty or overtime rate on top of their regular wage for that pay period.
Any other entitlements not covered by the annual wage must also be paid separately.
Hospitality Award minimum annual wage - what can be included
Under the Hospitality Award, an annualised wage arrangement can include payment for:
- minimum award rates for the employee's classification level
- allowances
- overtime
- penalty rates
- annual leave loading
- additional public holiday arrangements in clause 35.3.
When an annualised wage arrangement includes payment for these entitlements there is generally no need to calculate and pay for those entitlements in each individual pay period.
Additional payments
In any roster cycle, an annual wage can only cover an employee working up to a weekly average of:
- 18 penalty rate hours (excluding time worked between 7.00pm and midnight, Monday to Friday)
- 12 overtime hours.
These are called the 'outer limits'. Sometimes an employee will work more than these hours over a roster cycle. If this happens, an employer needs to pay an employee for these extra hours at the employee's minimum hourly rate plus any penalty or overtime rate on top of their regular wage for that pay period.
Any other entitlements not covered by the annual wage must also be paid separately.
Calculating the annual wage
Under the annual wage arrangement provisions in the Restaurant Award and the Hospitality Award, an employer needs to pay their employee at least 25% more than the employee's weekly minimum award rate, multiplied by 52.
Below is an example of how this is calculated.
Example: Calculating 25% above the weekly wage
Adult employees at a Level 4 classification under the Hospitality Award or the Restaurant Award are entitled to a weekly rate of $899.50 (from the first full pay period on or after 1 November 2021).
For annualised wage calculations, you need to add 25% to this weekly rate and then multiple it by 52.
$899.50 x 125% = $1,124.38
$1,124.38 x 52 = $58,467.50
Minimum pay rates in the Hospitality Award and the Restaurant Award will increase from the first full pay period on or after 1 October 2022.
At least every 12 months after the annualised wage arrangement starts, employers need to review and reconcile annualised wage arrangements to make sure their employees get at least the minimum amounts they would otherwise be entitled to for their work over the year. Any shortfalls must be paid back to employees. See Annualised wage arrangement reviews and reconciliation for more information.
Best practice tip
To avoid owing large shortfalls to employees, it's a good idea for employers to set an annualised wage at a level that will cover what their employees would have been entitled to be paid under their award over the year by considering their employees' work pattern and other relevant factors (such as busy periods).
Example: Annual wage under the Restaurant Award
Isabella and her family own a small Spanish restaurant in Sydney. Their chef, Bruno, is covered by the Restaurant Award.
Under the new rules, Isabella and Bruno have agreed to an annualised wage arrangement. Based on his qualifications and duties, Bruno is a level 4 employee and his minimum annual wage under this arrangement from the first full pay period from 1 November 2021 is $58,467.50. This is calculated as follows:
$899.50 x 125% = $1,124.38
$1,124.38 x 52 = $58,467.50
Later in the year, Bruno takes some annual leave to visit his family. The annual wage amount covers annual leave loading. This means that when Bruno takes time off, he receives his usual wage payment.
At the end of the 12 months from when the annualised wage arrangement started, Isabella reviews the annual wages paid to Bruno and realises that Bruno has been paid less than what he would've received for his work over the year if he wasn't under the annualised wage arrangement. Isabella pays back the shortfall to Bruno within 14 days.
Example: Annual wage under the Hospitality Award
Kelly owns a hotel and employs Sam as a full-time receptionist under the Hospitality Award.
Sam regularly works on the weekend and needs to be paid a penalty rate of 125% on Saturdays and 150% on Sundays. Sam works on a weekly roster and is paid weekly.
Kelly and Sam discuss the new annualised wage arrangement clause in the Hospitality Award and agree that Sam is to be paid the minimum annual wage for a level 3 employee. Sam's minimum annual wage under this arrangement from the first full pay period from 1 November 2021 is $55,484 which includes the weekend penalty rates he's entitled to. This is calculated as follows:
$853.60 x 125% = $1,067
$1,067 x 52 = $55,484
If Sam works more than 18 penalty rate hours per week not including any time worked between 7pm-midnight on weekdays, these extra hours aren't covered by the annual wage. Instead, Kelly will need to make a separate payment in addition to the regular wages paid to Sam each week.
Kelly reviews the annual wage payments at the end of the 12 months from the start of the annualised wage arrangement to make sure Sam is receiving his minimum entitlements for his work over the year.
Making the agreement and record-keeping rules
The Restaurant Award and the Hospitality Award now include extra record-keeping requirements. Employers need to follow these new rules when paying their employees an annualised wage.
Employers still need to comply with other record keeping and pay slip requirements under the Fair Work Act.
Making the arrangement
An annualised wage arrangement has to be agreed to in writing by an employee and employer. At a minimum, employers need to:
- keep a written record of the arrangement as a time and wages record
- give their employee a copy of the annualised wage arrangement.
The annualised wage arrangement needs to include:
- the annual wage amount
- which award entitlements are included in the annual wage
- the number of overtime and penalty rate hours that the employee can be required to work in a roster cycle without being entitled to an additional payment (called the 'outer limits').
During the roster period
Employers need to record the employee's:
- start and finish times of work
- unpaid breaks.
Confirming the roster period
At the end of the pay period or roster cycle, the employee needs to:
- confirm that the record is correct
- sign or digitally acknowledge the record.
Annualised wage arrangement reviews and reconciliation
Employers need to review and reconcile annualised wage arrangements:
- at least every 12 months after the arrangement started
- when the arrangement ends
- when employment ends.
This is to make sure their employees get at least the minimum amounts they'd otherwise be entitled to for their work over the year.
Sometimes an annualised wage arrangement may result in an employee getting paid less than what they would normally be entitled to for their work under the award. If an employer finds that they haven't paid their employee enough over the year, they need to pay the employee the shortfall within 14 days of completing the reconciliation.
Employers also need to pay their employees in each pay period:
- any additional amounts at the relevant award rate for any hours worked beyond the 'outer limits' for overtime or penalty hours
- any entitlements that aren't covered by the annualised wage arrangement.
Best practice tip
Reviewing these records throughout the year will make it easier to avoid mistakes and underpayments when it's time for the annual review and reconciliation of the annual wage arrangements.
Ending the arrangement
Under the new rules, employees and employers can end an annualised wage arrangement:
- at any time, by agreeing in writing that the arrangement is ending
- by giving the other party 12 months written notice that the arrangement is ending.
Downloadable guide to annualised wage arrangements
We're creating a guide that will include a template and checklist to help employers who want to pay employees an annualised wage under the Hospitality Award or the Restaurant Award. This guide will be available here shortly. Keep checking back here for updates.
