Thursday 28 September - Creating Confidence In How People Are Paid

Payroll Topic - Authorised Employee Deductions

The Fair Work Legislation Amendment (Protecting Worker Entitlements) Act 2023 provides greater clarity and flexibility and additional safeguards for employee authorised deductions.

Deductions for the employee’s benefit

The amendments allow employees to authorise their employers to make salary deductions that are recurring and are for amounts that vary from time to time. These deductions will only be allowed if they are principally for the employee’s benefit. This amendment eases the administrative burden on employees and employers. Previous provisions did not allow for varying deductions and required a new written authorisation each time the deduction amount changes.

The changes provide greater flexibility for employers and employees to manage deductions. Offering variable deductions and authorising them remains optional for both employers and employees. Employees may continue to authorise deductions for specified amounts only.

The amendments protect employees by requiring any written authorisation for a deduction to include any information prescribed by the regulations. Varying deductions are prohibited if the deduction directly or indirectly benefits the employer or a party related to the employer, with limited exceptions. Employees can also specify an upper limit when authorising a deduction that may vary from time to time.

A new written authorisation will only be required to vary the amount of an existing deduction where the initial authorisation specifies the amount of the deduction. Existing deduction arrangements may continue if they meet the requirements of the amendments.

What do these changes mean?

The amendments clarify the circumstances in which employees can validly authorise salary deductions. The changes provide increased certainty for employers and employees as to when a new written authorisation is required for deductions to continue. These provisions also empower employees and employers to make agreements about deductions which are principally for the employee’s benefit.

The amendments also recognise the validity of existing authorisations that comply with the provisions (for example, that specifically authorise employers to deduct amounts that vary from time to time). Unless they are withdrawn, these authorisations will continue to operate as though they were validly made. This respects the employees’ ability to choose to authorise deductions that are principally for their benefit.

When will these changes come into effect?

The amendments commence on 30 December 2023

Action Items

• Review and update your payroll processes to ensure compliance with these new Fair Work Act changes.
• Familiarise yourself with the details of the legislation and seek professional advice if needed.

Daylight Saving Time Change

Daylight saving time will end on Sunday 1 October 2023. Clocks go forward one hour at 2am to 3am in:

Australian Capital Territory

• New South Wales
• South Australia
• Tasmania
• Victoria

There is no change to the time in:

• Northern Territory
• Queensland
• Western Australia

What employees are paid if they work when daylight saving time ends?

Employees should check their award or enterprise agreement for terms about daylight saving. If there is nothing in them about daylight saving, payment is made ‘by the clock’.

Daylight saving time starts with rolling the clock forward from 2am to 3am. This means that employees working an overnight shift will work one hour less but are paid for that extra hour.

Example:

• Working through the night when daylight saving time ends Dave’s usual shift is 8.30 pm – 5 am. He works an 8 hour shift with a 30 minute unpaid break. Dave doesn’t have an award or registered agreement that says anything about daylight saving.
• During his Sunday night shift, daylight saving starts and the clock moved forward one hour. This means that while Dave works for 7 hours, he is paid for 8 hours of work ‘by the clock’. Earlier in the year, Dave worked when daylight saving started, he worked 9 hours but got paid for 8 hours.

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UNSW faces court

“Record-keeping is a crucial part of compliance with workplace laws, and this litigation and the penalties we will seek are a warning to all employers to prioritise getting records right.

“It is completely unacceptable for an employer’s record-keeping practices to be so poor that they prevent us from assessing what hours its employees have worked and whether it has paid its employees their full lawful entitlements.”

Fair Work Ombudsman - Anna Booth

To read the full article click here.

Payroll 101: Leave Loading

What is leave loading? And how is it inherently tied to the concept of overtime? This article aims to demystify leave loading, offering a brief history and explaining its intrinsic connection to overtime.

What is Leave Loading?

At its core, leave loading is an additional payment made to employees on top of their standard annual leave pay. It’s designed to compensate employees for the opportunity costs associated with not working extra hours, or overtime, during their leave.

The history behind Leave Loading

The origins of leave loading trace back to the recognition that employees, especially those in industries with frequent overtime, often earned considerably more than their standard wages due to the additional hours worked. When these employees took annual leave, they would only receive their regular pay, without the overtime, leading to a potential loss of earnings.

The rationale behind leave loading was to address this discrepancy. The concept was birthed to compensate employees for this “lost” potential to earn more during the period they were on leave.

The overtime connection

The nexus between leave loading and overtime is clear. Overtime, in many jobs, has become an expected part of the income. It’s not just the preserve of emergency situations or crunch periods; for many, it’s a regular feature of their working lives. Overtime is often paid at a higher rate than standard hours, recognising the additional strain and effort it places on employees.

So, when employees go on leave, they are generally sacrificing the potential to earn more from overtime. Herein lies the justification for leave loading: to ensure that employees on leave don’t experience a significant financial disadvantage because they’re not available to work those extra hours.

How Leave Loading is calculated

Generally, leave loading is calculated as a percentage of the employee’s regular wage. The most common rate is 17.5%, but this can vary depending on local regulations, company policies, and individual employment contracts.

Notional ability to work overtime

A significant aspect of leave loading lies in the idea of the “notional ability” to work overtime. In essence, even if an employee does not regularly work overtime, the mere potential or capacity to do so is factored into the leave loading calculation. This concept reinforces the premise that leave loading isn’t just about compensating for lost overtime but also for the notional loss of the ability to earn more.

Employers need to ensure they understand the intricacies of leave loading, not only to remain compliant with local regulations but also to maintain fairness and transparency in their compensation practices.

Author - Tracy Angwin

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FWC RULES ON APPLICATION FOR AN EQUAL REMUNERATION ORDER

PAY-PER-COOK

In December 2022, a number of significant changes to the Fair Work Act 2009 (Cth) (FW Act) came into effect as a result of the Fair Work Amendment (Secure Jobs, Better Pay) Act 2022.

The changes included updates to the Fair Work Commission’s (FWC’s) ability to make an equal remuneration order (ERO) if it considers that there is not equal remuneration for men and women workers for work of equal or comparable value. In summary:

• the FWC is now empowered to make EROs on its own initiative (as well as on application);
• there are now express provisions identifying the matters that may be taken into account in deciding whether or not there is equal remuneration; and
• the FWC is now required to make an ERO (as opposed to having the discretion to make one) if it finds, on application, that there is not equal remuneration for work of equal or comparable value.

In addition to this, there is a requirement for an Expert Panel to be constituted to deal with such applications. In July this year, an Expert Panel was constituted to deal with the first application for an ERO since the changes came into effect.

In the matter of Sabbatini v Peter Rowland Group Pty Ltd [2023] FWCFB 127, a former chef made an application for an ERO on the basis that she performed work of equal value to that of three male chefs in her workplace, but was paid a significantly lower salary than them.

After considering the evidence, the Expert Panel was of the view that there was not equal remuneration for work of equal or comparable value. She had been paid a salary that was $15,000 less than her male counterparts even though she was performing work of equal value, and she had been offered full-time employment six months after the others, which meant that she had lost out on full-time earnings for that period.

However, the Expert Panel did not make an ERO on the basis that:

• The application was not validly made under the FW Act. This was because the FW Act permitted only “an employee to whom the order will apply” to make an application. As she was no longer employed by the employer, she was not an employee to whom the order would apply.
• Further to this, the Expert Panel considered that even if it considered making an ERO on its own initiative, it could not do so because, as she was no longer an employee, such an order would not apply to her.

Lessons for employers

This decision is note-worthy as we expect these types of applications will become more prevalent in the future, particularly given the prohibitions on pay secrecy that also came into effect in December 2022. Evidently, they can only be made by current employees and not former employees.

Author - Athena Koelmeyer