New annualised wage arrangements for restaurant, cafe and hospitality workers. How does this affect the employer’s Workers’ Compensation insurance?

It’s important that labour hire companies and hosts are aware of recent changes to several awards in the hospitality, tourism, and aviation industries. Among the changes are an increase in the minimum wage and new rules for annualised wage arrangements for restaurants, cafés, and hospitality workers.

Following a decision by the Fair Work Commission, new annualised wage arrangement rules in the Hospitality Award and the Restaurant Award will take effect on 1 September 2022. These provisions replace the previous annualised salary arrangement provisions in these awards. These arrangements are known as annualised salaries.

These modifications only apply to full-time employees who are eligible for these awards. They do not apply to Hospitality Award Managerial Staff (Hotels). Only a few industries are permitted to use annualised salaries as part of their awards. Some employers use annualised salaries to simplify payroll, but they must be aware of additional obligations such as keeping a record of hours worked and performing an annual reconciliation to ensure employees are paid at least as much as they would have received if they were not on the annualised wage arrangement. This is done to ensure that employees are not harmed as a result of this arrangement.

Changes to minimum adult wages

From the first pay period on or after 1 October, minimum adult wages will change under the following awards:

• Air Pilots Award [MA000046]
• Aircraft Cabin Crew Award [MA000047]
• Airline Operations – Ground Staff Award [MA000048]
• Airport Employees Award [MA000049]
• Airservices Australia Enterprise Award 2016
• Hospitality Industry (General) Award [MA000009]
• Registered and Licensed Clubs Award [MA000058
• Restaurant Industry Award [MA000119]
• Alpine Resorts Award [MA000092]
• Marine Tourism and Charter Vessels Award [MA000093]

The recent changes will affect your Workers’ Compensation payments, make sure you read the updates below and ensure you pay the correct wage awards to avoid penalty.

Key changes include:

• rules about what award entitlements can be included in an annualised wage arrangement
• new rules about the maximum number of hours that attract overtime or penalty rates that an employee can work in a roster cycle and be included in their annualised wage (called the ‘outer limits’)
• what needs to be included in a written agreement for an annualised wage arrangement
• extra record-keeping rules
• new rules about ending an annualised wage arrangement.

These changes:

Only apply to full-time employees covered by the Restaurant Award or the Hospitality Award.

Don’t apply to people employed as Managerial Staff (Hotels) under the Hospitality Award.

Fair Work Ombudsman

If these changes don’t apply to you, you can read the information about Annualised Salaries.

Annualised wage arrangements — an overview

Employers can use annualised wage arrangements to pay their employees agreed-upon fixed regular amounts every pay period, even if their employees’ hours vary. This arrangement differs from employers paying employees annual salaries under employment contracts. For employees to benefit from an annualised wage arrangement, there are rules governing how to establish and formalise an annualised wage, including the minimum amount employers must pay.

Restaurant Award minimum annualised wage — what can be included

There is generally no need to calculate and pay for these entitlements in each individual pay period when an annualised wage arrangement includes payment for any of these entitlements.

Under the Restaurant Award, an annualised wage arrangement can include payment for:

• minimum award rates for the employee’s classification level
• split shift allowance
• overtime
• penalty rates
• annual leave loading.

Additional payments

In any roster cycle, an annual wage can only cover an employee working up to a weekly average of:

• 18 penalty rate hours (excluding time worked between 10.00 pm and midnight, Monday to Friday)
• 12 overtime hours.

These are referred to as the ‘outer limits.’ An employee may work more than these hours during a roster cycle. The annual salary does not compensate for these extra hours. Instead, in addition to the employee’s regular wage for that pay period, an employer must pay the employee’s minimum hourly rate, plus any penalty or overtime rate. Other benefits not covered by the annual wage must be paid separately.

Hospitality Award minimum annualised wage — what can be included

Under the Hospitality Award, an annualised wage arrangement can include payment for:

• minimum award rates for the employee’s classification level
• allowances
• overtime
• penalty rates
• annual leave loading
• additional public holiday arrangements in clause 35.3.

When an annualised wage arrangement includes payment for any of these entitlements there is generally no need to calculate and pay for those entitlements in each individual pay period.

Additional payments

In any roster cycle, an annual wage can only cover an employee working up to a weekly average of:

• 18 penalty rate hours (excluding time worked between 7.00 pm and midnight, Monday to Friday)
• 12 overtime hours.

These are referred to as the ‘outer limits.’ An employee may work more than these hours during a roster cycle. The annual salary does not compensate for these extra hours. Instead, in addition to the employee’s regular wage for that pay period, an employer must pay the employee’s minimum hourly rate, plus any penalty or overtime rate. Other benefits not covered by the annual wage must be paid separately.

This means that in each pay period, employers need to pay their employees:

• the regular amount for their annualised wage arrangement for the pay period
• any extra amounts at the relevant award rate for any hours worked beyond the ‘outer limits’ for overtime or penalty hours
• any entitlements that aren’t covered by the annualised wage arrangement.

Calculating the annual wage

An employer must pay their employee at least 25% more than the employee’s weekly minimum award rate multiplied by 52 under the annual wage arrangement provisions in the Restaurant Award and the Hospitality Award. Employers must review and reconcile annualised wage arrangements at least every 12 months after they begin to ensure that their employees receive at least the minimum amounts they would otherwise be entitled to for their work over the year. Employees must be reimbursed for any shortfalls.

For more information, see  Annualised wage arrangement reviews and reconciliation.

Below is an example of how this is calculated.

Making the agreement and record-keeping rules

The Restaurant Award and the Hospitality Award now include extra record-keeping requirements. Employers need to follow these new rules when paying their employees an annualised wage.

Employers still need to comply with other record-keeping and pay slip requirements under the Fair Work Act.

Making the arrangement

An annualised wage arrangement has to be agreed to in writing by an employee and employer. At a minimum, employers need to:

• keep a written record of the arrangement as a time and wages record
• give their employee a copy of the annualised wage arrangement.

The annualised wage arrangement needs to include:

• the annual wage amount
• which award entitlements are included in the annual wage
• the number of overtime and penalty rate hours that the employee can be required to work in a roster cycle without being entitled to an additional payment (called the ‘outer limits).

During the roster period

Employers need to record the employee’s:

• start and finish times of work
• unpaid breaks.

Confirming the roster period

At the end of the pay period or roster cycle, the employee needs to:

• confirm that the record is correct
• sign or digitally acknowledge the record.

Annualised wage arrangement reviews and reconciliation

Employers need to review and reconcile annualised wage arrangements:

• at least every 12 months after the arrangement started
• when the arrangement ends
• when employment ends.

This is done to ensure that their employees receive the bare minimum for their efforts throughout the year. An annualised wage arrangement may result in an employee being paid less than they would be entitled to under the award for their work. If an employer discovers that they haven’t paid their employees enough over the course of the year, they must make up the difference within 14 days of the reconciliation.

Ending the arrangement

Under the new rules, employees and employers can end an annualised wage arrangement:

• at any time, by agreeing in writing that the arrangement is ending
• by giving the other party 12 months written notice that the arrangement is ending.

You can download a guide to annualised wage arrangements below:

An employer’s guide to annualised wage arrangements in the hospitality and restaurant industries

Written by Yon Ta

Updated 29 September 2022

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Disclaimer:

The information provided is strictly for information only. The information provided should not be relied on for any purpose other than to assist you to understand how Workers’ Compensation insurance works. It is for illustrative purposes only and myWorkCover Solutions does not accept liability for any loss or damage suffered by any person resulting in any way from the use of or reliance on, the information provided. This publication may contain information that relates to the regulation of Workers’ Compensation insurance in your State or Territory. To ensure you comply with your legal obligations, we would recommend you refer to the appropriate legislation as currently in force in the State or Territory you conduct your business. You can find up-to-date legislation by visiting each state’s WorkCover Authority website, alternatively contact myWorkCover for updated information.