5 step process to calculate staff remuneration correctly

Published on 17 June 2022

The minimum wage will increase from the first full pay period commencing on 1 July 2022 meaning an update is needed to calculate staff pay in alignment with the relevant Modern Award. How can business owners and Human Resource professionals reduce the risk of underpaying staff on annual salaries?

Last week, CCIQ heard from Michael O’Brien, CCIQ Senior Industrial Relations Specialist and Alexander Greig, CCIQ Industrial Relations Specialist at a masterclass on Modern Awards and annual salaries titled: How to calculate staff remuneration correctly in partnership with Brisbane Business Hub.

Michael is an experienced Industrial Relations advisor skilled in case management, conciliation, and investigations. Alex has a diverse range of knowledge and experience in Industrial Relations and previously worked with the Fair Work Ombudsman. Read highlights from the event and get their expert tips below.

What is an Award?

Modern Award is a document that sets out the coverage clause containing:

• Ordinary hours of work
• Weekend rates
• Overtime rate and rules
• Employment roster, breaks, allowances
• Rules surrounding annual leave and sick leave
• Employee classification and pay rates.     

These are all principal factors that can impact an employee’s pay and need to be accounted for in a flat rate arrangement.

Why is knowing Award coverage important?

An employee must be provided with the minimum entitlements or greater. Therefore, it is important to understand the entitlements that apply to employees working in your business.

Knowing the right Award ensures you provide an employee with their legal minimum entitlements as well as understand your rights as an employer.

What are the challenges?

Modern Awards use obscure terminology and include industries that no longer exist. The Fair Work Commission writes and updates the Awards regularly, however due to their nature; Awards can still be challenging to navigate through.

What are the penalties for breaching the Award?

There are various risks involved with underpaying wages. One risk is civil penalties when provisions of the Fair Work Act have been breached. This can result in up to $12,600 per contravention for an individual or $63,000 per contravention for a body corporation.

Other major risks involved with underpayment is wage theft, which is a criminal offence in Queensland, and reputational risks. While that last one seems mild, it could seriously challenge the attraction and retention of staff and impact the business image.

How to reduce the risk of underpayment of wages?

The duties of the position, qualifications and experience all affect the Awards you need to align to when developing your employee's contract. Therefore, it’s important to:

• Ensure you know which Modern Award covers your employee or group of employees
• Understand and apply the relevant Modern Award entitlements
• Ensure all employees have an employment contract and are paid in line with it

If you are looking for support in understanding the Awards to reduce the risk of underpayments, contact Michael and Alex from the CCIQ HR team for guidance or call 1300 731 988. If not sure, just ask!

What is the Award Coverage process?

Award Coverage can be simple or complex depending on the business and employee.

It is important to review each employee individually and follow the 5-step process explained below to pick the right Award.

Remember to look beyond the job titles.

Also, it is strongly recommended to review the Award regularly since your business and employee roles can change overtime.

Step 1: Identify the industry Award

First, identify the industry your business operates in. Depending on the industry, multiple Awards might apply.

After finding the potential Awards, read the coverage clause (usually clause 4) to recognise the type of businesses it covers. You may notice that some clauses are narrow and succinct whereas others are extremely broad. As part of the process, rule out the Awards that do not provide sufficient coverage and make a judgement call on which industry definition your business falls under

It is important to note, you are not forever bound to the same Award. Businesses change and adapt, and you can move from one to another Award.

Step 2: Classify employees under the Award

Once the Award is determined the next step of the process is to classify employees under that Award. Follow the same approach as identifying the Award; review the classification structure and eliminate the classifications that do not apply.

Starting with the objective requirements such as qualifications, responsibilities etc. and then move to the subjective requirements, like level of control, autonomy etc.

Review award classifications yearly as some Awards have yearly progression as well as role transformations and it can have an impact on the base rate to flat rate calculations.

Step 3: Industry Coverage vs Occupational Coverage Award

If you are unable to find a suitable Award for your industry coverage it is advisable to look at the Occupational Awards. These Awards also have coverage clause and classification structures.

Most common Occupational Awards are the Clerks Private Sector Award and Professional Employees Award. Follow the same approach once more and eliminate the ones that do not apply. Once you find the potential Awards it is a matter of reviewing the classification structure as per the objective and subjective requirements. 

Some businesses reverse engineer position descriptions from Award classifications to ensure an employee performs work at the right level. However, in some cases, it is possible not to find suitable Award coverage.

Step 4: Miscellaneous Awards

Sometimes employees cannot be classified under either an industry or an occupational Award. This is where the Miscellaneous Awards comes in play.

Miscellaneous Awards usually apply to managerial roles or professional employees where there is no definition of a manager but crucial factors such as control and autonomy are considered. Similarly, some professional roles have no clear definition but come down to factors such as tertiary qualifications or membership to professional bodies e.g., Lawyers, Accountants, Town Planners etc.

Step 5: Award Free

When coverage under and Industry, Occupational or Miscellaneous Awards have all been ruled out, the employee can be classified as Award Free, which is common in high income positions. In such cases, employees are entitled to the National Employee Standards, but all terms and entitlements come from the contract e.g., annual leave, sick leave, redundancy etc.

Award Free employees are not eligible for unfair dismissal if they earn over the high-income threshold.

Those five steps make sure you find the appropriate Award for any employee role. And reduce risks of underpayment and misinterpretations of entitlements. Download the 5-step process factsheet.

You might also consider Annualised wage arrangements.

What is an Annualised Wage Arrangement?

Annualised wage arrangements are an agreement between an employer and an employee stating annual salary.

Several Awards allow them, where you can pay a fixed annual wage including other award entitlements which you would otherwise have to pay, including minimum weekly wages, allowances, overtime, and penalty rates.

Annualised salary provisions are simple to apply and provide flexibility when managing your employee’s remuneration arrangements.

What are the Annualised Wage Arrangements compliance requirements? 

To determine the Annualised wage amount, determine Modern Award coverage and classification along with employee working hours. Familiarise yourself with the Modern Award entitlements and calculate the annual salary based on roster.

Three steps to ensure that Annualised wage arrangements follow the relevant Award structure are to:

1. Confirm in writing how the annualised salary has been calculated including the ordinary hours, overtime hours and what allowances and penalties have been compensated for.
2. Keep record of start and finish times and unpaid breaks taken by employees. This record must be signed by employees in each period pay or roster cycle.
3. Lastly, the employer must conduct a fairness test and conduct a reconciliation to compare the annualised salary with the relevant Modern Award. In case of a shortfall, it is advised that the employee must be paid back within 14 days.

Key takeaways

Award Coverage can be a simple or a complex process depending on the business type and employees. However, it is important to:

• Review each employee individually and look beyond job title to find the right Modern Award.
• Keep in mind, businesses and roles change overtime. It is important to revisit and review coverage.
• Annualised wage arrangement is also an option where employer can pay a fixed annual wage excluding the other award entitlements.

How can CCIQ help your business?

Wage mistakes may be costing your business a lot of money. CCIQ members have access to our online library containing essential policies, procedures, tools, such as a Flat Rate Calculation spreadsheet, templates, and contracts.

Our contracts are drawn up by professional lawyers based on the current legislations and our Employer Assistance team can help customise these contracts as per your organisation.

CCIQ offers a wide range of HR assistance and memberships. For more information for the service, you need visit our website.

Please contact HR Services Employer Assistance Helpline on 1300 731 988 or email on [email protected]