Dis­pens­ing with awards — Can you pay employ­ees a lump sum amount that meets your award obligations?

The chal­lenge in busi­ness to keep up with changes and awards can be par­tic­u­lar­ly problematic.

Many busi­ness own­ers don’t have a full under­stand­ing of what awards apply to their staff and even less of an idea of what oblig­a­tions those awards con­tain. This occurs because in real­i­ty busi­ness own­ers are busy try­ing to run their busi­ness and do not have the time to become experts in indus­tri­al relations.

One of the com­mon ques­tions we are asked is: 

“can I pay my staff mem­ber a lump sum amount that will cov­er off my oblig­a­tions under the Award?”

The sim­ple answer is ​‘yes’ and there are three prin­ci­pal meth­ods for doing this under the Fair Work Act (the Act):

1. Enter­prise Agree­ment (EA): An EA is the eas­i­est way to sim­pli­fy your employ­ment arrange­ments and make sure that they com­ply with the oblig­a­tions under awards and the Act. EAs allow employ­ers and employ­ees to nego­ti­ate direct­ly to come up with an agree­ment which will entire­ly replace the award in its effect. For a medi­um to large enter­prise, it is an excel­lent way of ensur­ing that you are not leav­ing any con­tin­gent lia­bil­i­ties (in the form of under­pay­ment of wages claims) on your bal­ance sheet.

2. Indi­vid­ual Flex­i­bil­i­ty Arrange­ment (IFA): IFA’s are indi­vid­ual arrange­ments that vary the award. Cur­rent­ly, the vari­a­tions may only be lim­it­ed to a cer­tain num­ber of items although this is like­ly to change. Fur­ther, it is not scru­ti­nised by a third par­ty, which can lead to errors, but also makes the process eas­i­er. Final­ly, employ­ees or the employ­er can ter­mi­nate the agree­ments with­in the required notice peri­od (which the new Fed­er­al Gov­ern­ment is look­ing to extend out to 90 days).

3. Com­mon Law Con­tracts: Since the ear­ly 70’s, fol­low­ing a line of cas­es, employ­ers have been enti­tled to off­set their addi­tion­al oblig­a­tions under an award for over award pay­ments made to the employ­ee. Gen­er­al­ly, it requires the inser­tion of a par­tic­u­lar term with­in your con­tract that sets out clear­ly what claus­es the award is intend­ed to cov­er by mak­ing lump sum payments.

There are a range of options employ­ers can chose from to pay their staff above the award and do so in a way that suc­cess­ful­ly excludes or reduces the effect of the award from that point. How­ev­er, the key is mak­ing sure that you are pro­vid­ing suf­fi­cient remu­ner­a­tion to them such that it would out­weigh their enti­tle­ments under the award.