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  • Writer's pictureMartin Hesse

Mastering the Reporting and Reconciliation of Annualised Salaries

Annualised salaries have long been an attractive option for many employers due to their simplicity and predictability. However, to ensure compliance with the Fair Work Commission's (FWC) requirements and uphold employee rights, conducting reconciliations and BOOTs (Better Off Overall Test) of annualised salaries is crucial. In this blog, we will delve into the ins and outs of this process. 


Understanding Annualised Salary Reporting 

Before diving into the reconciliation process, let us briefly recap annualised salaries and annualised salary reporting. This pay structure involves compensating employees with a fixed annual amount, inclusive of all entitlements, such as overtime, allowances, and penalties. It streamlines payroll administration and offers predictability to employees. 

Employee contracts may contain clauses around “additional hours”, “reasonable overtime” or “flexible working arrangements”, but the fundamental requirement that an employee cannot be underpaid remains. To ensure this, the FWC has mandated that employers compare what workers have been paid with what they would have earned, had they been paid on an hourly basis in line with the applicable award i.e. including any penalties, overtime, or other allowances.  

Did you miss the introduction of these rules and mandates? You are not alone; they were introduced in March 2020, right when the first Covid lockdowns came into force in Australia. In more recent times, the FWC has been cracking down on breaches to these regulations, and it is anticipated that the number of awards having annualised salary reporting requirements added will increase. 


The Importance of Annual Reconciliation 

The Fair Work Commission mandates the inclusion of specific annualised wage arrangements and reporting requirements in relevant modern awards. As a result, employers must perform an annual reconciliation, also known as annualised salary reporting, to ensure compliance with these provisions. The goal is to confirm that employees are receiving at least the same remuneration they would have received under the applicable modern award if paid based on actual hours worked. 


The Reconciliation Process 

The annual reconciliation process can be broken down into the following steps: 

  • Accurate Record Keeping: Payroll professionals must maintain meticulous records of all hours worked, start times and finish times, including regular hours, overtime, breaks, and other relevant allowances. 


  • Calculation and Comparison: At the end of each relevant period (usually a year), the actual amount paid to an employee under the annualised salary arrangement is compared with what they would have earned if paid based on the modern award rates for the hours they have worked.  


  • Remediation for Underpayments: If the annualised salary falls short of the amount the employee would have received under the modern award, the employer must make up the difference and rectify any underpayment. 


  • Communication and Transparency: Employers must inform employees of the reconciliation results and any adjustments made to their salary. Transparency is crucial to maintaining employee trust and ensuring compliance. 


Difficulties in Undertaking the Reconciliation Process 

As with any payroll-related task, the annual reconciliation of annualised salaries comes with its share of challenges, but having an advance award interpreter like Rosterspace makes it significantly easier: 

  • Record Keeping: Accurate record keeping is paramount, but it can be intricate, especially for employees with varying work hours or those eligible for different allowances. Timesheets that are linked to an award interpreter, as is the case with Rosterspace, remove this complexity, as it provides accurate record keeping and performs the calculations. 


  • Overtime and Penalty Calculations: Calculating overtime and penalty rates can be arduous, particularly for employees with irregular work patterns.  As with complex recording keeping, if an award interpreter with advanced capabilities is being use these calculations and simplified. 


  • Ensuring Compliance with Modern awards: Staying up to date with the latest changes in Modern awards and ensuring compliance can be time-consuming and demanding.  An advanced award interpreter, such as that used in Rosterspace, will be built to reflect the award conditions as well as how the business operates.  Over time the ongoing dialogue between the organisation and the vendor ensures award updates that are relevant to the organisation are applied correctly, which further bolsters accuracy and compliance. 


  • Adjusting for Varied Work Hours: Some industries and job roles involve unpredictable work hours, making it challenging to determine accurate salary arrangements. This can be the case for organisations that do not have an award interpreter or have one which lacks functionality. 


Timesheets for Everyone 

A fundamental change which can be a challenge for a lot of organisation is the fact that timesheets become a mandatory process for full and compliant record keeping practices. This means that sectors which have traditionally been timesheet free, such as clerical and white-collar industries, now need to introduce timesheet capturing and approval processes.  

Workforce management systems like Rosterspace provide lots of different methods by which timesheets can be captured, including auto-population, mobile app, self-service and facial recognition. Using a combination of these methods can mean minimal change management when introducing new processes that might otherwise seem onerous.  


Better Off Overall Test (BOOT) 

The Better Off Overall Test (BOOT) is a critical consideration in annual salary reconciliations. As payroll professionals, you must assess whether employees are genuinely better off under the annualised salary arrangement than they would be under the Modern Award. 

To meet the BOOT requirements: 

  • Compare Total Earnings: Ensure the total amount received under the annualised salary is at least equal to or greater than what the employee would have earned under the Modern Award, accounting for all hours worked and entitlements. 

  • Review Employment Conditions: Verify that all other employment conditions provided under the Modern Award, such as leave entitlements and penalty rates, are maintained or improved with the annualised salary arrangement. 


Utilising the award interpreter from Rosterspace enables an organisation to do regular BOOTs, rather than annually at no extra cost. The benefit of completing BOOTs means that any pay discrepancies can be rectified quickly, and changes can be made proactively to become aligned again.  


As payroll professionals, mastering the annual reconciliation of annualised salaries is essential for ensuring compliance with the Fair Work Commission's requirements and maintaining employee rights. The challenges of remaining compliant can be managed through utilising an award interpreter like Rosterspace


Rosterspace is a best of breed workforce management solution for the Australian and New Zealand workforce. Known for its sophisticated technology, customer service and integration capabilities we are here to keep you compliant.

Book in for a demo and a chat today. 


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