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 January 2010.
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 tax exemptions.
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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