New annualised wage arrangements for Hospitality & Restaurant Awards

Following a decision made by the Fair Work Commission, from 1 September 2022, there are new annualised wage arrangement rules in the Hospitality Award and the Restaurant Award. 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’)
• requirements for what needs to be 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
• do not apply to people employed as Managerial Staff (Hotels) under the Hospitality Award.

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 and days of work vary.

There are rules around how to set and formalise an annualised wage for employees to benefit from an annualised wage arrangement, including the minimum amount employers have to pay.

Minimum annual wage — what can be included

Under the Restaurant and Hospitality Awards, an annualised wage arrangement can include payment for:

• minimum award rates for the employee’s classification level
• allowances (Hospitality Award) / Split shift allowance (Restaurant Award)
• overtime
• penalty rates
• annual leave loading
• additional public holiday arrangements in clause 35.3 (Hospitality Award only)

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 – Restaurant Award, excluding time worked between 7.00pm and midnight, Monday to Friday – Hospitality Award)
• 12 overtime hours.

These are called the ‘outer limits’. Sometimes an employee will work more than these hours over a roster cycle. The annual wage does not cover these extra hours. 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.

All 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 must pay their employee at least 25% more than the employee’s weekly minimum award rate, multiplied by 52.

What needs to be included in a written agreement for an annualised wage arrangement

An annualised wage arrangement must 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 the employee can be required to work in a roster cycle without being entitled to an additional payment (called the ‘outer limits’).

Extra record-keeping rules

Employers need to record the employees:

• start and finish times of work
• unpaid breaks

At the end of the pay period or roster cycle, the employee needs to:

• confirm that the record is correct
• physically or electronically acknowledge the record.

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 ensure their employees get at least the minimum amounts they’d otherwise be entitled to for their work over the year.

An annualised wage arrangement may result in an employee getting paid less than they would usually 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 must 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.

Ending an annualised wage 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.

Why annualised salary?

So why would you have an annualised salary in place? The benefit is that for you and the employee, there is a regular rate of pay – it does not vary from week to week. This allows you and the employee to plan. In a tight market for quality employees, annualised salaries can be a great way to attract and retain employees.

Please let us know if you need assistance reviewing and updating your employment contracts.