“But I am paying over award rates. Isn’t that enough?” Most business owners who get into trouble with Industrial Tribunals all say this line. They think that by paying a little (or a lot) over the award, that they can ignore the rest of the clauses in the relevant industrial award. And that’s where they come unstuck!
Why Pay Over Award Rates?
Businesses pay over award rates for many reasons. The main reason is to attract and retain quality employees. Unless they meet the market, their staff may look elsewhere, creating turnover problems in their organisation.
Another reason that a business may pay over award is to simplify their payroll administration by rolling up a number of entitlements such as leave loading, regular rostered overtime and meal allowances into a flat over award rate.
A Few Key Things to Know About Paying Over Award
If you are thinking of paying an employee over the award, you need to dot your eyes and cross your t’s.
This is a hotly litigated area of industrial law, and it is an area where we recommend you seek competent legal advice to ensure you are not leaving yourself open to challenge down the track.
Unless you have specifically entered into an Individual Flexibility Agreement (IFA), or unless the person is over the high-income threshold, or unless you are covered by an approved enterprise agreement, or unless you have entered into an annualised agreement with the person under the relevant clause in their award, then even if you pay over award wages, ALL the remainder of the award conditions apply.
If your agreement is not clear, it can lead to conflict over whether something has been paid; whether someone has been paid enough; conflict over payments on sick leave or annual leave; and conflict on termination about termination or redundancy payments.
If you fail to correctly comply with award provisions, then you can be taken before the relevant tribunals and face significant fines as well as the requirement to repay entitlements. Remember, underpaid employees can seek redress for up to 6 years.
In other words, if you want to pay over the award, and roll up other conditions into that payment, then a handshake or a simple letter is generally not enough to reduce your risk.
If You Are Considering Over Award Payments
The simplest option is to simply pay higher than award rates and then apply all remaining terms and conditions as per the award.
If you want to head down the path of paying over the award AND roll up a number of terms and conditions into the rate, you need to clearly document what has been rolled up into the wage.
You also need to establish a regular review of the arrangement, to ensure that the person remains “better off overall” through the term of the agreement.
Unless the level of over-award payment is equal to, or greater, than the amount the employee would have received had the entitlements been calculated on the appropriate award rate classification, you will be in breach of the Fair Work Act and can be penalised.
Finally, you need to reach agreement on wage adjustments if the award rate changes. Will you increase the over award rate in line with the award changes, or will you absorb the award increase into the over award rate and maintain the rate?
Paying over the award is not a simple solution to staffing issues. If you want to pay your employees over the award by rolling up conditions, seek advice first.