Can leave loading be absorbed into annual salary?

Can leave loading be absorbed into annual salary?

By Paul Munro on 14 May 2018 Can annual leave loading be included as part of an employee’s over award payment? 

This question was recently sent to our Ask an Expert service.

Q Our company has several employees who will take annual leave over the next few months.  They are employed under the Manufacturing and Associated Industries and Occupations Award 2010 and the Clerks – Private Sector Award 2010 respectively. They will be paid their ordinary rate of pay plus 17 ½ per cent annual leave loading. The company is considering implementing an annualised salary arrangement at the next wage review in July this year.

Can annual leave loading be included as part of an employee’s over award payment? And what award conditions can be absorbed into an annualised salary if permitted?
 
A The applicable award will usually contain a clause ‘Annualised Salary’ or ‘Award Flexibility’ which permits an arrangement under which an employee takes home a pre-determined and generally unvarying weekly proportion of a fixed annual salary. This has been calculated by projecting existing weekly wage rates, penalty payments, annual leave loading and monetary allowances that are set out in the applicable award.

This may be done in the form of an over award payment or may be subject to the prescription of an applicable modern award.

Modern awards


A modern award will usually contain a clause which identifies the terms which can be included in an annualised salary.

For example the Clerks-Private Sector Award 2010 (cl. 17) provides:

17.1 Annual salary instead of award provisions

(a) An employer may pay an employee an annual salary in satisfaction of any or all of the following provisions of the award:

(i) clause 16 – Minimum weekly wages
(ii) clause 19 – Allowances
 (iii) clauses 27 and 28 – Overtime and penalty rates, and
(iv) clause 29.3 – Annual leave loading.

(b) Where an annual salary is paid an employer must advise an employee in writing of the annual salary that is payable and which of the provisions of an award will be satisfied by payment of the annual salary.

17.2 Annual salary not to disadvantage employees

(a) The annual salary must be no less than the amount an employee would have received under this award for the work performed over the year for which the salary is paid (or if the employment ceases earlier over such lesser period as has been worked).
(b) The annual salary of the employee must be reviewed by the employer at least annually to ensure that the compensation is appropriate having regard to the award provisions which are satisfied by the payment of the annual salary.

17.3 Base rate of pay for employees on annual salary arrangements

For the purposes of the National Employment Standards, the base rate of pay of an employee receiving an annual salary under this clause comprises the portion of the annual salary equivalent to the relevant rate of pay in clause 16 – Minimum weekly wages and excludes any incentive-based payments, bonuses, loadings, monetary allowances, overtime and penalties.

The Manufacturing and Associated Industries and Occupations Award 2010 contains an ‘Award Flexibility’ clause which provides the following:

7.1 Notwithstanding any other provision of this award, an employer and an individual employee may agree to vary the application of certain terms of this award to meet the genuine individual needs of the employer and the individual employee.

The terms an employer and an individual employee may agree to vary are those concerning:

(a) arrangements for when work is performed
(b) overtime rates
(c) penalty rates
(d) allowances, and
(e) leave loading.

7.2 The employer and the individual employee must have genuinely made the agreement without coercion or duress. An agreement under this clause can only be entered into after the individual employee has commenced employment with the employer.

7.3 The agreement between the employer and the individual employee must:

(a) be confined to a variation in the application of one or more of the terms listed in clause 7.1; and
(b) result in the employee being better off overall at the time the agreement is made than the employee would have been if no individual flexibility agreement had been agreed to.

The bottom line: An employer should refer to the applicable modern award regarding annualised salaries or award flexibility provisions. Where an over award payment is paid to include certain award conditions such terms should be identified and any agreed arrangement should be in writing.
 

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