Salary and annualised wage arrangements

While a salary typically refers to a fixed amount paid over a year, an annualised wage includes the potential for additional payments and may require different considerations for work hours and entitlements.

Let's look at both in detail, including the key features and the payslip requirements for each.
 

Salary

A salary is a fixed amount of money paid to an employee. It is typically expressed as an annual figure and divided into regular pay periods (weekly, fortnightly, or monthly). Salary is commonly used for full-time and part-time roles, particularly in professional, administrative, and managerial positions.

Key features of a salary:

• Covers a standard number of hours per week (usually 38 hours for full-time employees)
• May include a set number of hours of reasonable additional work without extra pay (depending on the employment contract)
• Overtime and penalty rates are generally not paid unless specified in the contract or award
• Subject to the National Employment Standards (NES) for conditions such as, leave entitlements
   

Salaried payslip requirements

If an employee is salaried and receives the same pay each period, there’s no legal requirement to show hours worked on the payslip (excluding specific items like leave without pay or allowances). Instead, the periodic salary can be displayed without listing hours.

Recent Guidance from Fair Work Australia

We have recently received commentary from Fair Work Australia indicating that, while not a legal requirement, omitting hours worked from payslips for salaried employees is considered best practice.

This approach helps reduce the potential for disputes regarding hours worked, as it eliminates any implied confirmation of specific working hours that may not align with an employee’s actual schedule. By focusing payslip details on the agreed salary and excluding hours, employers can limit the risk of retrospective claims where employees argue they worked more hours than recorded or expected. This is particularly relevant when salaried employees have flexible or varying work patterns.

  Hot tip: To implement the approach of omitting hours on payslips for salaried employees in foundU, you can start by enabling the 'Salaried basis' option in the employee's position. Please refer to the instructions in this guide. 

  For a clearer understanding of employers' obligations regarding payslip information and compliance, please take a look at this guide from Fair Work. 

Let's now look at the annualised wage agreement in detail and the payslip requirements for this.

Annualised wage arrangements

An annualised wage is a payment arrangement where an employee receives a set yearly amount designed to cover all their entitlements, including:

• Ordinary hours
• Overtime
• Penalty rates
• Allowances
• Shift loadings

This arrangement is typical in industries with fluctuating work hours or where employees regularly work beyond standard hours.

  Hot tip: Annualised wages are often used in hospitality, retail, and clerical industries.

Key features of an annualised wage arrangement:

• This includes payment for all hours worked, including overtime and penalties, and is rolled into one annual figure
• Requires strict compliance with the applicable modern award, including:
  • Record-Keeping - Employers must track actual hours worked to ensure the employee is not disadvantaged.
  • Reconciliation - Employers must regularly (at least annually) compare the annualised wage to what the employee would have earned under the award. If there is an underpayment, it must be corrected.
• Outer Limits:
  Many modern awards that allow annualised wage arrangements set outer limits on:
  • The maximum number of ordinary hours that can be worked per pay period or roster cycle and
  • The maximum number of overtime or penalty-rate hours the annualised wage can cover

If an employee works beyond these outer limits, additional payments are required to compensate for the extra hours. These payments must be made in addition to the annualised wage to ensure compliance with minimum entitlements under the award. Failing to compensate for hours beyond the outer limits can result in underpayment breaches.

  To better understand employers' obligations regarding record-keeping for annualised wages, please take a look at this guide from Fair Work.
 

Annualised Wage payslip requirements

Since actual hours worked are tracked to ensure compliance with modern awards, payslips should clearly show these hours alongside the payment details.

  To find out more about annualised wage arrangements and whether they are suitable for your industry and award, please take a look at this guide from Fair Work.

Understanding the difference between a salary and an annualised wage in Australia is crucial for employees and employers, as it affects calculations for pay, overtime, and benefits.

While both arrangements provide employees with consistent income, an annualised wage includes additional compliance requirements to protect employees' entitlements under modern awards. Employers must ensure proper record-keeping, monitor outer limits, and conduct regular reconciliations to avoid underpayments.

For salaried employees, recent commentary from Fair Work Australia suggests that not displaying hours on payslips is best practice, as it reduces the likelihood of disputes related to hours worked.

This approach simplifies payroll administration while also mitigating risks associated with retrospective claims. However, it remains essential for employers to maintain accurate internal records of hours where relevant, particularly for managing leave, flexible work arrangements, and compliance with maximum weekly hours under the Fair Work Act.

  Please note: We have summarised the key aspects below to help you best understand the difference between the two.