Upon first review of the Fair Work Act, we had formed the view
that Salary Sacrifice Arrangements (SSAs) introduced by company
policy or contractual agreement could simply continue under the
Fair Work Act.
However, after conflicting decisions from the Full Bench of the
Australian Industrial Relations Commission as part of the award
modernisation process, we consider there to be some legal risk in
applying a contractual or policy-based SSA to amounts that form
part of the minimum "base rate of pay" for
employees who will be covered by a modern award from 1
Specifically, to date all modern awards require the minimum
"base rate of pay" for work performed to be paid in cash
to the employee. Breach of such a provision is a breach of the
"general protections" in the Fair Work Act. The Full
Bench of the Australian Industrial Relations Commission has stated,
twice now, that it will not provide an exception in modern awards
for an SSA that sacrifices these minimum amounts, and that such an
SSA should only be permitted by way of collective bargaining.
The Government policy has been concerned to ensure that any
deductions from employee wages be for the employee's benefit,
not the employer's. But with two conflicting views now put
forward, one by the Explanatory Memorandum to the Fair Work Act and
the other from the Full Bench of the Australian Industrial
Relations Commission, the position is now uncertain for employers
who have traditionally provided contractual SSAs at the request of
(and clearly in the interests of) employees where those employees
will be covered by a modern award from 1 January 2010.
Impact on Employers
Employers - particularly those in the PBI (public benevolent
institution) sector, who provide SSAs to their employees for all or
a significant portion of employee remuneration - are concerned
whether their existing arrangements will be enforceable after the
introduction of modern awards from 1 January 2010. In the PBI
sector, non-cash benefits are widespread in light of the
considerable tax benefits that apply arising from fringe benefits
It appears that these employers may need to pay cash to
employees to meet base award pay obligations - and SSAs are only
permitted below the base award pay obligations where there is a
collective agreement permitting the SSA.
Employees in the PBI and other sectors will be considerably
worse off after-tax if they were to receive cash payments to them
rather than have their employer pay the amounts to third parties -
for example, to banks for mortgage payments, and to funds for
health insurance funds and superannuation contributions. These
employees may look to their employers to make up the after-tax
decrease in remuneration resulting from the change in law.
The Way Forward
Given the conflicting views put forth, the Government should
provide urgent clarification of Parliament's intention
regarding the continued legal effectiveness of SSAs below base
modern award pay obligations under the Fair Work Act, and whether
the position put forward by the Full Bench of the Australian
Industrial Relations Commission is the correct view.
If such clarification is not forthcoming, or if the
clarification indicates that the position put forward by the Full
Bench of the Australian Industrial Relations Commission is the
correct view, employers may examine alternative options, such as
enterprise bargaining to override the modern award's payment
provisions and permit a tailored SSA.
2010 Norton Rose Program
Our Remuneration and Benefits team looks forward to joining with
Norton Rose Group's Tax, Employment, Pensions and Employee
Incentives team in 2010 presenting clients with an informative
range of seminars, legal training and information with the full
support of 30 Norton Rose Group offices worldwide.
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