The Fair Work Commission has introduced new rules regarding annualised wage arrangements for certain modern awards. A list of applicable modern awards with annualised wage arrangement provisions can be found here.
Under these rules, no full-time employee employed under an annualised wage arrangement ("annualised wage employee") can be paid less than they would have otherwise received under the award.
This guide explains how to reconcile what an annualised wage employee has been paid versus what they would have been paid under the award.
Follow best practices for setting up annualised wage employees by referring to these instructions. Ensure employees are correctly configured to avoid errors in the reconciliation process.
To perform the reconciliation process:
- Confirm that your business has Awards enabled in your subscription. Instructions for installing an award into payroll can be found here.
- Ensure employees have submitted timesheets. Timesheets are required to calculate hours worked, allowances, and entitlements.
The award reconciliation process is available only for businesses with Awards enabled in their subscription, as the calculations rely on pay condition rule sets included in the Award package. Employees must also have completed timesheets, as these are necessary to determine worked hours, days, and applicable allowances for the reconciliation.
To begin the process:
- Navigate to Payroll Settings then click Rule Sets (under the 'Pay Conditions' list).
- Select the relevant award from the dropdown list.
- Hover over the applicable rule set, click Test Rules, and follow these steps:
- Select Year as the timesheet period.
- Enter the end date for the timesheet period (e.g., 10/3/2024 for a range of 11/3/2023 to 10/3/2024).
- Click Import, select the employee from the dropdown list, and click Import again.
- Review the imported timesheets displayed on the screen.
- Scroll down to filter additional settings, ensuring the Award Rules option is locked.
Once you import the annualised wage employee's timesheets, the screen will display each month of that year. You can choose to click on a specific month(s) to expand the timesheet details for the month(s) or click on Expand All.
You will notice that all timesheets are locked and cannot be edited or created. This is intentional for several reasons:
- Timesheets should already exist for annualised wage employees as that is a requirement under the award's annualised wage arrangement provisions;
- Timesheet data should not be getting updated/edited in this section if it is incorrect as it then completely varies from the actual timesheet data submitted by employees (and the timesheets employees can view). To avoid the situation of tampered timesheet data, users should rather be making changes to the timesheets in the system and re-importing them into the rules tester.
To be clear, the rules tester imports all non-rejected timesheets for the employee over the date range specified. This includes timesheets that have the status submitted, approved, or processed.
When reviewing award reconciliation results, you'll see two types of outcomes displayed both on the screen and in the export file:
- Costing of each timesheet
- Rules triggered based on employee details and timesheet data
Viewing Results on the Screen
The results are organised into two tabs:
- Shifts: Displays timesheet details.
- Rules: Provides a comprehensive overview of all triggered rules.
You can click the ? icon next to the timesheet duration to view which rules from the rule set were triggered and how the timesheet was costed. However, for a clearer overview, it’s recommended to use the Rules tab.
When viewing the Rules tab for a 12-month period, all months will be collapsed by default. You can expand specific months by clicking the > icon or choose Expand All to view all details.
Understanding the Rules
On the right-hand side, you'll see a list of rules from the pay condition rule set. Here's how they are handled:
- Custom Rules: Marked with a "custom" label, these are user-created rules that are excluded from the reconciliation. This ensures the process assesses only the standard award provisions.
- Disabled Rules: These are still assessed during reconciliation to ensure compliance with all pre-configured award provisions.
When you expand a month, each rule and timesheet will have either:
- A tick: The rule was applicable and used to interpret the timesheet.
-
A cross: The rule was assessed but was not relevant to the timesheet.
Exporting the Results
If you choose to export the results:
- Column V in the file will list all rules triggered for each timesheet.
- While all award rules (excluding custom rules) are assessed during reconciliation, only applicable rules are included in the export.
Accessing Rule Details
To review details for a specific rule:
- Navigate to the Pay Condition Rule Sets screen.
- Click Edit Rules to view all rules in a collapsed format. You can expand individual rules or click Expand All for full details.
If you encounter a message stating you need to unlock the rule set first, simply follow the on-screen instructions to unlock it and proceed with the steps above.
Take note of the following points that apply when costing timesheets as part of the reconciliation process:
- Pay rates attached to the selected pay rate template as currently installed will be the rates used to cost the timesheets. As such, you should ensure the reconciliation process is undertaken for all annualised wage employees prior to installing any award updates that incorporate rate changes or rule changes.
- Only award based work types will be interpreted. Any custom created work types will be ignored.
- As stated in the previous section, disabled rules will be used when costing timesheets however custom rules will be ignored.
- Only tags created as part of the award package will be interpreted. Any custom created tags will be ignored.
- At this stage, shift conditions and higher classifications are not interpreted to determine timesheet costing.
- As only timesheets are interpreted, users must ensure that any leave requests are converted into timesheets so that leave days are also costed accordingly.
The last row on the export file will provide you with a total cost for the timesheet period, this being the earnings the employee would have otherwise received if they were not on an annualised wage arrangement. To compare the total with what the annualised wage employee was actually paid, generate a Gross to Net Report for that employee covering the date range used when undertaking the reconciliation.
If what the employee was paid, as determined by the Gross to Net Report, is less than what the employee would have otherwise been paid under the award, as determined by the rules tester export, this difference is called a "shortfall". As stated at the start of this article, the employer is required to pay the annualised wage employee the shortfall within 14 days.
If the employee's normal pay is to be processed within the next 14 days, you can include the shortfall payment with the normal pay. Otherwise, you will need to process the shortfall in an out of cycle pay run.
It is best to clearly indicate in the pay run (and thereby the employee's pay slip) that the amount being paid relates to the shortfall. As such, we suggest creating a new pay category called "Shortfall" or something similarly distinguishable. Ensure that the pay category is configured as follows:
- Units = Fixed
- Super Rate = 10%
- PAYG Exempt = keep box unchecked
- Payroll Tax Exempt = keep box unchecked
- Payment Classification = Default
To process a shortfall amount, which typically covers a period of 12 months or less, we recommend using the Add lump sum payment action in the pay run.
- Select either the Lump Sum A or Lump Sum B(ii) option, depending on the specific circumstances.
- Apply the Shortfall Pay Category in the pay run.
- Enter the shortfall amount in the Rate field.
- Add a note in the Notes field specifying that this payment covers the shortfall for the period from [start date] to [end date].