Flat Rates and Annualised Salaries

The Pastoral Award 2020 offers two ways to simplify how a dairy employee is paid while still meeting minimum award entitlements: an individual flexibility arrangement (IFA), which sets a flat hourly rate, or an annualised salary.

Both move away from paying strictly by the hour, but they work differently and carry different legal requirements. The table below is a quick comparison.

 

	Individual flexibility arrangement (IFA)	Annualised salary
Pay arrangement	Flat hourly rate	Fixed annual salary
Agreement required	Written agreement between employer and employee	Written agreement between employer and employee
Can include	Overtime, penalty rates, allowances and annual leave loading	Minimum wages, overtime, penalty rates, allowances, annual leave loading and public holidays
Employee protection	Must pass the better off overall test (BOOT)	Must not receive less than their award entitlement over the year
Record keeping	Normal payroll records	Detailed time records and annual reconciliation
Best suited to	Employees with reasonably consistent hours	Salaried employees working regular, predictable hours

Individual flexibility arrangements (IFA)

Once the minimum legal pay and any applicable benefits have been identified, they can be combined into an overall remuneration package. For full-time employees, this may include a flat hourly rate that compensates for overtime, penalty rates and other award entitlements (see Pay and Packages).

Where this changes how award entitlements are applied, the arrangement must be made through an individual flexibility arrangement (IFA) or an enterprise agreement, and must satisfy the better off overall test (BOOT). Under the Pastoral Award 2020, an employer and an individual employee may enter into an IFA to vary only the following award terms:

• arrangements for when work is performed, such as hours of work,
• overtime rates,
• penalty rates,
• allowances, and
• annual leave loading.

The Fair Work Ombudsman maintains the general rules for IFAs.

Better off overall test (BOOT)

An IFA passes the better off overall test only if the employee is better off overall than they would have been under the Pastoral Award 2020. The flat rate calculator can help determine whether a proposed flat rate meets this requirement.

Creating an IFA

1. Discuss the proposed IFA.
2. Confirm that only the permitted award terms are being varied.
3. Use the flat rate calculator (or another method) to confirm the employee will be better off overall.
4. Both parties sign the IFA and keep a copy. If the employee is under 18, a parent or guardian must also sign.

Using the flat rate calculator

The flat rate calculator estimates the minimum flat hourly rate required for an employee to be better off overall. It uses the employee's classification and minimum hourly rate, expected overtime hours, Sunday overtime hours, and public holiday hours worked over a 12-month period, and estimates the minimum flat hourly rate needed to satisfy the BOOT. 

• After commencement only. An IFA can only be entered into after employment has commenced — it cannot be a condition of getting the job.
• No pressure. An employee cannot be required, pressured or disadvantaged for refusing to enter into an IFA.
• Recalculate when rates change. Review and recalculate the flat rate whenever award wages increase or the employee's classification changes.
• Records matter. Keep accurate records of hours worked — the BOOT assessment is based on the employee's actual pattern of work (see Record Keeping). 

Annualised salaries

The Pastoral Award 2020 also allows an employer and employee to agree in writing to an annualised salary instead of paying an hourly rate. This can simplify payroll and provide greater certainty where employees regularly work overtime, weekends or public holidays. An annualised salary may include one or more of these award entitlements:

• minimum wages,
• allowances and special allowances,
• overtime,
• penalty rates,
• annual leave loading, and
• payment for public holidays.

Requirements

The annualised salary must be at least equal to the amount the employee would have received under the Pastoral Award 2020 for the work performed during the year (or for the period of employment if it ends before the year is completed). Employers must:

• keep accurate records of the employee's start and finish times and unpaid breaks,
• reconcile the annualised salary against the employee's actual award entitlements each year (or on termination of employment), and
• pay any shortfall identified through the reconciliation.

The Fair Work Ombudsman maintains the current rules on annualised wages and salaries (see also Record Keeping).

Templates