Many Australian workers are covered by a “Modern Award”, which is an instrument made by the Fair Work Commission and which sets minimum conditions and pay rates. As part of its four-yearly review of modern awards, the Fair Work Commission has handed down a decision that will rapidly shift how law firms are required to pay and account for staff that are covered under the Legal Services Award 2010 (“the Award”). This includes staff such as law clerks, clerical and administrative employees, and graduate lawyers. Solicitors who have been admitted are not covered under the Award. The decision specifically impacts ‘annualised salary’ provisions. An annualised salary is a salary arrangement whereby an employee receives a pre-determined and ‘all-inclusive’ salary each year, in lieu of benefits they are entitled to under the Award such as overtime, penalty rates and annual leave loading. Similar decisions have been made in other awards, but perhaps none will have as big an impact on day-to-day practices as the changes to the legal services area.
Under the new annualised salary provisions (“the New Provisions”), employers must advise the employee in writing how their annualised salary is calculated, including any overtime or penalty assumptions used in the calculation. Employers must also advise employees of the outer limit number of ordinary hours that would normally attract a penalty rate and the outer limit number of overtime hours the employee may be required to work without being entitled to an amount in excess of the annualised salary.
The provision that requires employers to implement systems that ensure an employee keeps record of working hours has received significant pushback from most major law firms, on the basis that it is too administratively difficult and would undermine the relationship of trust they have with their employees. This includes recording the starting and finishing times of work and any unpaid breaks taken. This record-keeping has two functions.
Firstly, if in a certain pay period an employee works any hours in excess of the ‘outer limit’ amounts specified, then the hours will be paid for in accordance with the applicable provisions of the Award. This means that if an employer has advised an employee that the outer limit of overtime hours per week covered in their annualised salary is 5 overtime hours per week, and instead the employee is required to work 7 overtime hours in a particular week, they will be paid 2 overtime hours per the rates stipulated in the Award.
Secondly, the New Provisions require that the annualised salary received must be no less than the amount the employee would have received under the Award for the work performed over the year. As such, the employer must perform an annual reconciliation of the salary paid, calculating the remuneration that would have been payable to the employee under the provisions of the Award and comparing it to the annualised salary. If there is a shortfall, this amount must be paid to the employee.
These changes come into effect on 1 March 2020. The New Provisions will place significant obligations on employers to maintain accurate records to avoid the risk of underpayment and claims of “wage theft”. Given the brand damage recent underpayment scandals have caused major companies in Australia, law firms must ensure they approach timekeeping and reconciliation diligently. These changes are most significant for graduate lawyers, who are often expected to work an undefined but significant number of hours (on the basis that they are required to work ‘reasonable additional hours’) which would otherwise attract large overtime payments under the Award. The New Provisions follow SafeWork NSW and WorkSafe Victoria investigations into major law firms for unreasonably long working hours and employee fatigue.
These changes to the Award signify a move towards greater accountability and protection for graduate lawyers, who are often in a vulnerable bargaining position to receive fair remuneration for the hours they work. As noted above, similar changes will apply across a range of industries where annualised salaries have become common.