- Published
A recent Federal Court decision involving Coles and Woolworths may have widespread implications for employers who pay flat rates or annual salaries.
Background
In the past, there were mixed approaches between employers on assessing whether employees paid flat rates and salaries were “better off overall”. Many employers adopted an approach of utilising an employment contract set off clause to balance payments out over a period — such as across several weeks, months, or even annually — to demonstrate compliance with award entitlements.
The recent Coles and Woolworths decision has now clarified this position. Employers must assess compliance for each pay period, ensuring employees receive payment for all applicable award entitlements — such as overtime, penalties, and allowances — in the pay period they are due.
What the Case Found
The decision confirmed that employees must receive all minimum entitlements owing under the relevant award in each pay period. This includes overtime, penalties, allowances, shift loadings, travel and other award entitlements. Employers can no longer rely on a “all-up” or “averaging out” approach over time to demonstrate compliance.
What This Means for Employers
If you currently pay employees a flat rate, loaded rate, or annual salary (or other all-up arrangement) that is intended to compensate for overtime, allowances, penalties and the like, you will need to carefully review your arrangements.
Key considerations include:
- How employees are paid – Are they on an annualised salary arrangement under the award, an annual salary with a set off clause or simply a flat hourly or weekly rate?
- Fluctuating entitlements – Do working hours or entitlements vary from week to week? If so, you may be at risk of underpayment in certain pay periods.
- What’s included? – Exactly which entitlements are built in to the rate/salary and how is this documented?
- Monitoring entitlements – Are we monitoring hours worked and working circumstances against what the rate/salary covers each pay period?
- Individual Flexibility Agreements (IFAs) – If you rely on IFAs to offset award conditions, they must be properly drafted, genuinely agreed to, and ensure the employee remains better off in each pay period.
Next Steps
Now is the time to:
- Review pay structures and contracts for employees on flat rates and salaries;
- Conduct a reconciliation now to ensure employees are receiving all applicable award entitlements each pay period;
- If hours and/or entitlements vary from pay period to pay period, audit these scenarios frequently to ensure employees are receiving all award entitlements each pay period;
- Seek advice before continuing or implementing new arrangements.
Every business will be affected differently depending on its workforce and pay practices.
If you’re unsure how this decision impacts your business, please get in touch with our team for tailored advice and support.
