The payment of an annual salary is provided for in many awards and employment arrangements, but it is absolutely vital that any salary is appropriately modelled and how additional ‘unmodelled’ hours will be treated is addressed.  Failure to properly model for and then compensate for unmodelled additional hours has resulted in massive quantum’s of underpayments across a series of industries including supermarkets.  Star Entertainment Group has joined this growing list of businesses reviewing their salary arrangements and locating large underpayments.

The underpayments, totalling $13 million,  impacted 2,200 employees, who were engaged on salary arrangements and who, the review highlighted, worked unmodelled overtime resulting in the underpayments.

Star Entertainment Group has committed to promptly and fully rectify the underpayments including superannuation and interest.

“Annual salaries are a great option for businesses to simplify payroll, and staff report preferring the consistent nature of a salary.  But it needs to be understood that the employee must receive payment that matches the time they actually worked.  Anything less is an underpayment” explains ACAPMAs Elisha Radwanowski.

“Businesses considering implementing a salary have to take the time to ensure that it is modelled correctly.  This means understanding the days and times the employee will work, then applying the Base Rate, any applicable Shift Loadings and Penalty Rates to the ordinary hours.  What this, and the raft of cases we have seen recently, highlight is the need to also address overtime” continues Elisha.

“In many businesses salaried staff will be working 40 hours a week, this means the modelling for the salary needs to appropriately provide for 2 hours overtime at a minimum” adds Elisha.

“When assisting members with salary modelling we often recommend modelling unforeseen additional hours.  For example we may suggest that if there are 2 hours of known overtime per week, that the modelling should be done to include a further 2 hours of ‘unforeseen’ overtime” continues Elisha.

“The first element is getting the modelling right, but the second element is comparing reality to modelling” cautions Elisha.

“The business MUST review the actual hours that the employee works and if it is more than the modelling then the salary will be insufficient as compensation.  The business would then need to provide further compensation in addition to the salary, or, as some businesses do when provided for in the employment contract, additional leave – time off in lieu – known as TOIL”  adds Elisha.

“All businesses who have salaried staff should take this, and other cases, as a call to review their modelling, compare it to the reality and adjust as needed” notes Elisha.

“Salaries can be a great option, but the salary represents payment for all hours worked and must not be less than the employee works.  To achieve this modelling must be comprehensive, additional hours must be addressed, the actual hours worked must be reviewed, at least annually, but ideally quarterly, and adjustments made as required” concludes Elisha.

Here to Help

HR Highlights are things to consider, implement and watch out for in your business. They are provided as general advice, Members are reminded that they can seek further advice on their situation by  emailing  its free for members. ACAPMA membership is affordable at only $810 per year for a single site and valuable with sites gaining HR advice support and representation as well as a raft of other benefits and discounts. Click  here to learn more about ACAPMA membership.

Elisha Radwanowski BCom (HRM & IR)