The Importance of Getting Your Employee’s Employment Contracts Correct
For administrative efficiency, employers will often pay their staff a salary or rate of pay that is above the minimum entitlement described in the applicable modern award or registered workplace agreement, with the intention to compensate for all minimum entitlements that would otherwise apply (such as penalty loadings, overtime and allowances).
However, if this intention is not clearly articulated in the employee’s employment contract, the risk remains that an employee could, later on, make a claim for those minimum entitlements consumed within the salary or higher rate of pay (such as penalty loadings, overtime and allowances) over and above their wage.
Kent v Tal & Ors
The decision in Kent v Tal & Ors  FCCA 3218 serves as an important reminder of this risk.
In this decision, the Federal Circuit Court held that an account manager was entitled to additional weekend penalty rates and overtime entitlements despite being paid an annual salary that was higher than the employee’s minimum award base rate of pay.
The letter of appointment issued to the employee characterised the employee’s remuneration as follows:
“$50,000 plus super plus 1.5% commission on all sales to new and existing clients. Salary to be paid weekly on Fridays. Commission to be paid once clients have paid their accounts and superannuation to be paid quarterly… 40 hours per week (on average)”
The Court found, based on the content (or lack thereof) of the appointment letter, that there was no evidence to demonstrate that at the time the employer had agreed to pay a salary to the employee, it was made clear to the employee that the salary would satisfy all overtime and penalty rate entitlements under the relevant modern award.
The Court held:
Where there is a payment made for ordinary hours of work which is in excess of the award obligation, the excess cannot be set-off against a claim for underpayment of overtime unless at the time of the payment of the excess, the employer designates that that excess over the amount of the award obligation is paid for the purpose of satisfying any entitlement to overtime payments
Employers that pay their employees a salary must therefore proactively manage this risk by ensuring that their employment contracts contain an effective set-off clause.
Compliance with the industrial instrument
It is also essential that all employment contracts comply with the industrial instrument that covers the employee’s employment (e.g. Building and Construction General On-site Award 2010 (Award) or a registered workplace agreement). By way of example, for employees covered by the Award, the employment contract must confirm their terms of their engagement, comply with part-time employee hours of work requirements and attach a casual conversion clause if casual.
Providing employment contracts to employees which detail their terms of employment (including start date, position and capacity) will ensure that there is certainty about all employee’s terms of employment and will limit the risk of a dispute about these matters. Employment contracts will also assist an employer to comply with its record keeping obligations.
Members are encouraged to call MST Lawyers to speak to a specialised employment lawyer, who will be able to assist you with your existing employment contracts.
By Renee Karakinos, Lawyer, MST Lawyers