Hospitality industry to introduce annual salary arrangement

A decision by the Fair Work Commission could give restaurant and hospitality workers the option of receiving an annual wage that covers penalty rates and overtime.

13 April 2022 

On 7 April, the Fair Work Commission handed down a decision which proposes to vary the Restaurant Industry Award 2020 (the Restaurant Award) and the Hospitality Industry (General) Award 2020 (the Hospitality Award) by introducing new annualised wage arrangement provisions into these two awards.

Pursuant to the provisional decision (the Commission is seeking final submissions in the coming fortnight before finalising the decision), an annualised wage arrangement can be entered into between employees and their employer which covers a variety of award entitlements, including minimum rates, penalty rates, overtime rates and leave loading.

However, the annualised wage arrangement comes with a long list of conditions.

Firstly, it must provide employees with a salary which is 25% greater than the minimum wages prescribed for an employee’s classification under the relevant Awards.

Next, the annualised wage arrangement is also limited in relation to the number of hours it captures. Specifically, it only captures in each four-week roster cycle:

  • 38 ordinary hours of work each week
  • an outer limit of 18 ordinary hours that attract penalty rates per week over the four-week roster cycle and
  • an outer limit of 12 overtime hours per week over the four-week roster cycle.

In reaching its decision on this point, the Commission concluded that it was appropriate to exclude any penalty hours worked from 7pm to midnight under the Hospitality Award and 10pm to midnight under the Restaurant Award from the above outer limit calculations. This means that hours worked at these times will not use up the 18 outer limit penalty rate hours and 12 outer limit overtime hours available to employers in each pay cycle (notwithstanding that work at these times attracts a low penalty rate).

The exclusion of these hours from the outer limit calculations – a significant win for employers – was in response to submissions made by Australian Business Industrial to the effect that including these commonly worked hours in the calculations would severely limit the utility of the annualised wage arrangement.

The annualised wage arrangements are also qualified by the following further protections:

  • employers must conduct a yearly audit to ensure that, over the course of a year, the employee has earned no less under the annualised wage arrangement than they otherwise would have under the relevant award
  • the annualised wage arrangement must be recorded in a written agreement which specifies:

(i) the annualised wage that is payable

(ii) which of the provisions of the award are satisfied by payment of the annualised wage 

(iii) the outer limit number of penalty rate ordinary hours and the outer limit number of overtime hours which the employee may be required to work in a roster cycle under the annualised wage arrangement without being entitled to any additional payments.

The annualised wage arrangements will come into effect on 1 September 2022.

Luis Izzo, Managing Director of Sydney Workplace, said the Fair Work decision does not apply to managerial staff in the Hospitality Award, who are subject to a much less prescriptive annual salary regime outlined in clause 25 of the Hospitality Award.

“Whilst the acceptance of ABI’s submissions regarding some of the annualised wage arrangements is pleasing, the provisions remain unfortunately complex and will likely be difficult for employers to implement,” he said.

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