Paying an annualised wage or salary instead of an hourly rate
The Pastoral Award 2020 includes a term allowing for an annualised salary to be paid to employees. While an IFA allows employers and employees to pay a flat hourly rate an annualised salary allows for a flat weekly or fortnightly amount to be paid for all hours worked.
The Pastoral Award 2020 ensures that these annualised salary arrangements don’t undermine minimum employee entitlements by providing that the agreement to pay an annualised salary must be no less than the amount the employee would have received under the award for the work performed over the year of the Agreement – or less if the employment is terminated before a year.
This is called the no disadvantage test.
What can be included in an Annualised Salary?
- Minimum wages
- Allowances and special allowances
- Hours of work and rostering
- Overtime rates
- Penalty rates
- Annual leave loading
- Payment for public holidays
You must make sure that the employee is at no disadvantage when compared with the Award.
What is the NO Disadvantage test?
The No Disadvantage Test compares the Annualised Salary amount with the amount amount that the employee would have received if they were paid strictly according to the Pastoral Award 2020. This involves a comparison of the financial rewards the employee would receive if they were not on the annualised salary with the amount they are being paid on the annualised salary. The Annualised salary arrangement will pass the No Disadvantage Test if the amount is at least the same as they would have received if they were paid by the hour with all penalties and loadings paid in accordance with the Pastoral Award 2020.
Passing the No Disadvantage Test
Using the flat rate calculator, it is relatively straightforward to work out a flat pay rate for full-time employees that takes into account overtime and penalty rates.
To complete the calculator you must work out the outer limit of the overtime hours that you expect that the employee will work in a pay period or roster cycle and include this in the figures you use so that you can be sure that you are paying the employee for all hours which will be worked.
Once you have determined the relevant minimum amounts of pay required by law and any other benefits which you may be able to provide, you can begin to work out a package. Go to the Annualised Salary Pay Calculator.
Annualised salary – recalculate to reflect changes
The annualised salary will need to be recalculated every time there is a minimum wage increase and to reflect increases due to reclassification of the employee, e.g. moving from an FLH1 after one year to an FLH3. Check you are using the latest version of the Annualised Salary Pay Calculator.
The process explained
Unlike an IFA, an annualised salary can be offered to the employee either before they commence working for you or once they have started working for you. It is just another form of employment contract.
The Annualised Salary Contract
There are specific requirements as to what must be included in the annualised salary contract. The template contract contains these requirements.
The annualised salary contract must contain the outer limit of overtime hours that you expect that the employee will work in any pay or roster cycle and you must keep accurate time record of hours worked. If in any pay period or roster cycle the employee works in excess of the hours specified in the contract, the employee must be paid for these hours in addition to the annualised salary.
Every 12 months or on termination of the employment the employer must do a tally of the hours worked and the amounts paid to ensure that there is no shortfall. If there is a shortfall the employer must pay this to the employee within 14 days.
Termination of the annualised salary contract
An agreement for an annualised salary can be terminated by either party by giving 12 months’ notice or at any time by agreement between the employer and the employee. (note that this refers to the agreement only and the employee would remain employed but would fall back to coverage by the award).
If in any pay period or roster cycle the employee works in excess of the hours specified in the agreement, the employee must be paid for these hours in addition to the annualised salary.
Accurate time records of starting and finishing times and breaks taken must be kept and signed by the employee each pay period or roster cycle.
Resources, support material and updates
The ESKi is designed to get you started and is integrated with the resources across this website. The documents and links below will help you with this topic. This includes templates you can download and customise for your farm, including your business name, logo, etc. and PDFs you can print and write on.