Home - What is the purpose of an annualised salary?
July 28, 2022 on chapter Annualised salaries

What is an annualised salary and what are the benefits of using it rather than a regular wage?

An annualised salary is a type of absorption agreement that allows you to pay an employee a uniform weekly wage in full satisfaction of all award minimum weekly wages, allowances, overtime and penalty rates, and annual leave loading.

So, instead of paying each entitlement separately, the annualised salary specifies that the employer will pay their employee one annualised salary that covers all the award entitlements.

Under modern awards, arrangements to pay an employee an annualised salary is called an annualised wage arrangement.

The advantage of implementing an annualised wage arrangement is that you can absorb overtime and penalty rates into an annualised salary. By paying an employee an annualised salary, you can pay the employee the same weekly and fortnightly wage regardless of the hours they work in that week or fortnight.

However, you should ensure that the annualised salary arrangement doesn’t disadvantage your employees; that is, that employees would be better off overall with the increased salary than they would have been if they received all their entitlements under the applicable modern award or enterprise agreement, or national minimum wage order if award/agreement-free. You should also ensure that employees agree to this arrangement.

Depending on the needs of your business, you might consider whether it is easier for you to have employees on annualised salaries, or instead to pay wages in line with the applicable industrial instrument (including overtime and penalty rates), with a possible increase in the hourly rate to match salary expectations.

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