Annual Salaries ~ 25-02-2025

In the last newsletter we advised on the need to ensure that if you are providing an annual salary to an employee that the contract of employment clearly sets out how the salary compares to the award and that the expected overtime is covered by the annual salary.

In a recent case the Federal Circuit and Family Court of Australia determined that it was unreasonable for an employer to require one of its employees to work a 40-hour week.

At the time of termination, the employee was paid an annual salary plus superannuation. An award applied to the employment.

The employment contract stated, 'standard hours of work are 40 hours per week, Monday to Friday, 9.00am sharp to 6.00pm'. There was no payment for overtime.

Under the Fair Work Act 2009 (Cth), an employer must not request or require a full-time employee to work more than 38 hours in a week unless the additional hours are reasonable. An employee may refuse to work additional hours if they are unreasonable.

Many employers require employees to work more than 38 hours per week. However, an employer may not be able to justify this practice by merely claiming that this is a common practice in their industry. There must be a legitimate need for requiring employees to consistently work more than 38 hours per week.

This case also shows that employers need to ensure that employees are being paid overtime rates in accordance with any applicable award. If employees are paid an annual salary, employers may need to ensure that both their employment contracts and actual practice make it clear that their annual salaries compensate them for all time worked, including overtime.