By Joseph Nunweek
If you’ve spent sleepless nights wondering how to manage the varying costs of wages – specifically, the administrative burden that ever-shifting overtime, penalty rates and shift allowances create – I’ve got a provocative thought for you.
Have you given your employees the BOOT before?
This isn’t going to be a bulletin about lawful dismissals, I swear. I’m talking about someathing that could be better for them, and for you.
Absorbing the costs
If your employees work weekends, nights, or in excess of 38 hours a week, it’s likely that the award that covers them will state that they are entitled to an amount above their ordinary base rate of pay whenever they put in this time.
However, you might be able to have these entitlements absorbed into an over-award payment you make to the employee.
This is sometimes known as an absorption agreement – an employer and employee agree that entitlements the employee would otherwise receive are ‘absorbed’ into one slightly higher payment.
But be careful. An absorption agreement doesn’t let you evade the overtime, penalty rates, or shift allowances an employee is entitled to – rather, it enables you and the employee to manage these amounts in advance.
Do you need a little more flexibility?
You may have heard about award flexibility agreements (AFAs) before. Charles Power, the Editor-in-Chief of the Employment Law Practical Handbook, and the writer of our newly-updated Wages Guide 2015, calls them the “most legally effective way to make an absorption agreement”.
Why so effective? It’s because every modern award has a clause saying that you can vary certain terms of the award regarding the payment of working hours, overtime, penalty rates, allowances, and leave loading.
But any AFA must result in the employee being better off overall than if no agreement had been made. That’s the Better Off Overall Test – that’s why you’ve got to give your employees the B.O.O.T!
Some of the other requirements of an AFA might seem obvious. They should be made in writing, they should have the employee’s free consent, and they should say exactly where the employment relationship is departing from the award.
Don’t make a time-saver into a headache
If your AFA is poorly drafted and/or not fairly negotiated, you might be looking at a claim for underpayment from your employee – or worse, a visit from the Fair Work Ombudsman. Believe me – we get to read about these.
For instance, back in 2011, a Queensland shooting arcade was prosecuted and was fined $25,000 – and its director had to cough up a further $5,000.
Although he was paying his workers at a higher grade under the Award then he was required to, the wording of his AFAs didn’t say what was changing, how it would change, or even when they would commence.
Worse, employees who questioned whether they would be better off under the AFAs, or wished to consider them further, were told by the director they would be out of a job if they didn’t sign on the dotted line.
Consider preparing an AFA from an existing and compliant template – and make sure a person’s employment is never conditional on accepting one.
Apart from award flexibility provisions, some modern awards will let you pay an employer an annualised salary to cover their minimum weekly wages, allowances, overtime and penalty rates, and annual leave loading.
Annualised salaries have another advantage, depending on where you’re coming from – they don’t require the employee’s written consent the way flexibility agreements do, and can be incorporated into an employee’s employment agreement.
But they also require careful estimation of what hours an employee will be required to work in a particular year, and must be reviewed at least annually to ensure you are paying an employee what they are entitled to under the relevant award.
Absorption agreements don’t let you leave your employees any worse off – but they can mean that wages can be managed more easily for everyone, both at the payroll end and the employee’s household budget.
But as you’ve probably seen, they’re a sticky business to draft and estimate – so don’t be afraid to read more for help!
Until next time,
Editor, Workplace Bulletin