Annual Salaries and Offset Clauses
Awards are complex instruments and may not be well-adapted to the circumstances of a particular business. This leads many employers to offer flat annual salaries with offset clauses to avoid having to manage the administration of week-to-week variations that can arise under the award system.
What is an ‘Offset’ Clause?
It is well established that an employer and employee can lawfully agree to a contractual arrangement where the employee is paid more than the base rate required by the relevant award.
The ‘over award’ component of that pay arrangement is designed as having met or in other words, offset the employer’s obligations to make other payment obligations that may arise under an award, such as overtime, penalty rates, loadings, and allowances.
Lawful vs. Unlawful
A Salary arrangement can be a win-win option for both employer and employee, but unless you have lived under a rock, you’ll be aware of the significant number of cases involving employers unlawfully underpaying salaried workers in recent times.
Whether this happens because employers choosing not to check, or just get it wrong is debatable, but if you have workers on a salary, there is a need to reconcile the arrangement regularly to ensure that sure your employees aren’t worse off compared to the relevant industrial instrument.
The calculation must include minimum pay rate + overtime loadings + allowances + any other entitlements for the hours and type of work performed.
Recent court cases have made it clear that offset clauses can be relied upon so long as they are appropriately drafted, and that the amount of money being paid fully meet the relevant award obligations.
Conclusion
The use of annual salaries and offset arrangements under common law remains a viable option.
However, there are many practical and technical challenges associated with their use and it’s therefore critical to ensure that any contractual provisions are carefully drafted to achieve a lawful outcome.
We can help you better understand your obligations concerning annual salaries and offset clauses.
Contact us now for free initial advice.