If you’re paying an employee ‘above Award rates’ in lieu of certain entitlements under the Award (e.g. overtime, etc), you must make sure your employment contract specifies which Award entitlements are being discharged by this extra payment.

You may have decided to engage staff under a contract of employment that provides for an hourly rate above the Award minimum per-hour. Your intention is that this ‘excess’ payment is in lieu of any Award entitlement, i.e. leave payments, overtime, allowances and penalties. Therefore, you assume upon the termination of the employment relationship, you have met all your obligations towards your employee. This may not be what your employee understood at the time of contracting, and as a consequence you find yourself in dispute – and potentially paying double.

An employee has a right to be paid in accordance with the employment contract (a contractual right) which is separate from their rights arising under the Fair Work Act 2009 (Cth) or any applicable Industrial Award (statutory rights).

If an employer intends to pay an employee a rate which is above the Award minimum the contract of employment must have a ‘set-off clause’. The set off clause must clearly outline that the rate is intended to cover all Award entitlements (a so called ‘all in’ rate).

This issue was considered by the Court in the matter of McInnes v Aegis AC Pty Ltd [2020] FCCA 1142. In this case, Mr McInnes commenced employment with Aegis AC as an Asbestos Removalist which was a role covered by the Building and Construction Award 2010. This Award provides various allowances which includes allowances for confined spaces, asbestos awareness, meal allowance, first aid, site allowance, overtime, etc.  The terms of Mr McInnes’ employment contract did not state that the hourly rate he was being paid was intended to also discharge other entitlements under the Award. The Court ordered that the hourly rate in the contract (to the extent that it was above the Award) could not be used to off-set other Award entitlements. This decision is consistent with other cases, where payments characterised as a ‘goodwill gesture’ or ‘incentive payments’ were not intended to be part of the payments to employees to meet their Award entitlements.

This case highlights the danger of an overly simplistic employment contract and the importance of having an effective set off clause in a contract of employment especially for employees who are covered by an Award and are receiving hourly rates which are greater than the minimum rate of pay under the Award.

How can we help?

If you don’t know by now, employing other people is not easy. The industrial law landscape is everchanging. We can help you put in place contracts of employment with your employees that meet your obligations under statute and common law. Call Sladjana Skoric on 0410 900 248.