Paying Over Award Does Not Ensure Compliance

Modern awards have covered most workplaces from 1 January 2010. A common misconception is that paying above award rates will automatically release an employer from compliance with award obligations. Unfortunately, it is not that simple. Awards govern more conditions than just pay rates, for example, rostering arrangements, allowances, and shift penalties. An employer needs to take positive steps to comply with, vary, or exclude the operation of these and other award conditions.

A breach of award conditions can attract civil penalties of up to $33,000 for a corporate employer and individuals involved can also be penalised up to $6600 for each breach.

Off-setting arrangements

If an employer has properly entered into an off-setting arrangement that makes it clear that over-award payments are in satisfaction of all penalties, wages etc due under the award, then that arrangement can continue as a result of the commencement of the modern awards.

As a general principle, over-award payments can only satisfy entitlements to which the payment is directed. For example, paying a higher hourly rate than the modern award rate of pay will not necessarily off-set penalties or loadings in the modern award, unless it is clear that the parties intended it to do so. Also, the over-award payment must satisfy each of the entitlements which would otherwise have been payable to the employee over the salary period (eg annually).

In view of this, a good starting point is to include a 'set-off' clause in your employment contracts. A template clause can be found in the HR Advance Contract of Employment under the heading 'Compensation for all legal entitlements'. However, such an approach should only be relied upon as a minimum, and does not guarantee that you will not be exposed to liability for breach of an award or for underpayment.

Individual Flexibility Arrangements

This type of clause can be complemented by entering into an Individual Flexibility Arrangement with a particular employee in order to vary the effect of the application of certain terms of the award (eg overtime, allowances, loading etc). A template, Individual Flexibility Arrangement (Award Covered), can be found under the Agreements tab of HR Advance.

A range of other mechanisms may be available to enable an employer to vary or exclude the operation of awards/award conditions, such as annualised salary arrangements (provided this arrangement is permitted by the award), a high income guarantee of annual earnings (this is known as the high income threshold and is currently $118,100 from 1 July 2011), or negotiating an enterprise agreement. All of these are available on HR Advance, along with useful explanatory commentary.

HR Tip

If you are using an over-award payment to absorb or set off monetary obligation imposed by an award, ensure this is documented in your time and wages records.

Source: HR Advance Legal Team
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