Employers often elect to pay their employees an annualised salary in order to fully satisfy all entitlements the employee may have under a Modern Award and to simplify the pay arrangements. Modern Awards apply to a range of administrative, professional, technical and certain management positions, including engineers, architects surveyors, IT, real estate and vehicle salespersons and property managers. Whilst there is some legal precedent that salaries can absorb award payments, there has been a recent Western Australian Industrial Relations Commission decision that vague or broad terms that an annual salary is inclusive of “any award provisions/entitlements that may be payable under an award” is insufficient and uncertain. The decision provided that employers must identify and specify the applicable Modern Award and relevant Modern Award terms incorporated as part of the salaried rate in the contract of employment to minimise exposure to successful underpayment claims.
If a position is covered by Modern Award and a salary is the preferred method of payment, the appropriate and legally binding mechanism is an individual flexibility agreement in terms of the Modern Award. The arrangement can be drafted to be in the style of a typical common law contract of employment.