Q. Due to the adverse economic conditions currently impacting our business, senior management has decided there will be a freeze on all staff wages and salaries for the next financial year.
We are concerned that there does not appear to be any reference to the ability for the company to absorb the recent Annual Wage Review decision into the relevant over-award payment referred to in our contracts of employment.
Is the company legally obliged to pass on the increase to staff from 1 July? Or does this fall into the category of ‘management prerogative’? Most of our award-covered staff is in administrative roles. 

A. In the case of award-covered employees, the applicable modern award generally contains a standard clause that permits the absorption of any increase in wage rates and other monetary amounts prescribed by the award.

An employer’s capacity to absorb over-award payments depends on the nature of the arrangement with the particular employee regarding the purpose of the over-award payments.

The employer should check whether an employee’s over-award payment was intended to be in addition to the relevant award rate of pay, in line with any increase in the relevant minimum award wage. This would prevent new obligations in the award from being absorbed.

For award-free employees, such as management, any salary increase would be subject to the terms of the employee’s contract of employment. 
 

Bottom line 

The Annual Wage Review raises the minimum award wages and the National Minimum Wage every year on 1 July.

In the absence of a specific term in the employee’s contract of employment which prohibits absorption, the employer is not required to pass on the increase.