Annualised wage arrangements for restaurant, cafe and hospitality workers

Because of the intricacies outlined in the Hospitality Industry (General) Award (HIGA) and the Restaurant Industry Award (RIA), it can be challenging for businesses in the hospitality industry to be confident they are getting annualised wage arrangements right. 

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The fast paced nature of work in the hospitality and restaurant industry often makes annualised salaries difficult to manage and monitor with this administrative burden falling onto the shoulders of the payroll team. 

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The lack of ongoing visibility into hours and overtime from pay period to pay period, has created uncertainty within the industry as many are worried the salary they are paying employees is not enough to cover their award entitlements. Many of these businesses are operating with small payroll teams that simply do not have the time or resources to monitor and understand how employees on annualised wage arrangements are tracking throughout the year. 

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What is an annualised wage arrangement? 

Annualised wage arrangements cover some or all entitlements under the relevant industry award as employees are paid the same amount each pay period, as opposed to paying an employee based on each hour or shift they work.

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The “Annualised Wage Arrangements” clauses in the HIGA (Clause 24), and the Restaurant Industry Award (RIA)(Clause 20), outlines that if an employee is paid under an annualised wage arrangement, it must be of an amount that is at least 25% more than the minimum wage prescribed in the award multiplied by 52. Entitlements covered within an annualised wage under this clause can include any or all of the following: 
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• Minimum rates 
• Allowances (HIGA only)
• Split shift allowance (RIA only)
• Overtime rates 
• Penalty rates 
• Annual leave loading 

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Why have annualised wage provisions been challenging? 

This remuneration method is often perceived as a simple way to pay full-time employees. However businesses must still keep track of all hours worked and make ongoing reviews to ensure the wage arrangement is greater than what the employee would normally receive in the award. Due to the fast pace nature of the hospitality industry, employers should consider these likely scenarios which can affect an employee’s roster and payments: 
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• Employees agreeing to and covering shifts last minute
• Extending shifts for busy periods 
• Called in earlier to cover for another employee 
• Called into another venue to help coverage 

These instances can be challenging to accurately prepare for and can result in extra entitlements to the employee for hours worked outside of their arrangement. 
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For example, both industry awards state that employees are limited to work a certain amount of penalty and overtime hours within a roster period before the employer has to pay an additional payment on top of the annualised wage. The maximum number of hours that can be worked that is included in an employees annualised wage is: 
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For hospitality:

• An average of 18 ordinary hours which would attract a penalty rate under clause 29.2 (a) of the award per week, excluding hours worked between 7pm to midnight; or
• An average of 12 overtime hours per week in excess of ordinary hours.

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For restaurants: 

• An average of 18 ordinary hours which would attract a penalty rate under clause 24.2(a) if this award per week, excluding any hours worked from 10pm to midnight; or
• An average of 12 overtime hours per week in excess of ordinary hours.

Because of these strict guidelines in the clause, it’s important that the business keeps adequate records in the form of rosters and timesheets to assess if the employee is working in excess of what is covered in their annualised wage arrangement.  To avoid big reviews and reconciliations of payroll records, it is important for businesses to undertake regular reviews to ensure employees are working within their annualised wage arrangements. 

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The importance of ongoing reconciliation

The Fair Work Commission currently requires businesses to conduct a review within 12 months from the start of the annualised wage arrangement which gives employers a chance to compare the annualised salary amount against what the employee would have been entitled to under the modern award. Shortfalls in wage payments must also be reconciled with the employee within 14 days of the annual reconciliation period. 
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However a 12  month reconciliation period does not allow businesses to make operational changes  to combat underpayments or record keeping inconsistencies. Under the HIGA and RIA, an annualised wage arrangement should include specific records from employees such as: 
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• Annual salary amount 
• Overtime hours 
• Penalty rates 
• Start and end times 
• Unpaid breaks 
• Paid breaks 
• Method of calculating annual salary 
• Allowances included

Employers should also regularly check if their employees are receiving any entitlements which may not be included in their annualised wage arrangement such as allowances. We have noticed increased attention from Fair Work about compliance in the Hospitality industry, with many eateries around the country being targeted for wage compliance.

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How can PaidRight help 

Gaining more regular insight into variance in pay can help businesses in the hospitality industry better understand where each employee stands. An example may be that an employee has worked more over Easter throughout the public holidays and may need to be rostered on less in the following months to ensure a reconciliation at the end of the year isn’t necessary. 

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Using ongoing reviews improves accuracy that can be used to prove compliance during reconciliation periods and increases overall visibility into payroll that might not be achieved without it. Automating compliance reviews enables greater analysis of employee records and ensures greater business-wide transparency when it comes to paying employees correctly.