The role of integrating time, payroll and HCM in annualised salary

With the recent Federal Court decisions on annualised salary payments, much focus has been placed on the role of time and workforce management solutions. But payroll and Human Capital Management (HCM) play an essential role in managing annualised salaries in your workforce.

What is an annualised salary?

Annualised salary arrangements are a voluntary agreement between an employee and an employer, where employees are paid a fixed annual amount covering all minimum award entitlements like base wages, penalties, allowances, and overtime – but only if done in full compliance with workplace laws.

Annualised salaries can be complex because:

• Modern awards governing different industries contain specific annualised wage clauses and vary in what entitlements can be included. Employers need to calculate entitlements in line with award provisions and ensure annualised wage amounts don’t fall below what employees would otherwise receive under the award.
• Recent Federal Court decisions have emphasised that salary and annualised arrangements cannot simply “offset” entitlements across pay periods unless permitted by the award. Like an enterprise agreement, annualised salary agreements must pas ‘Better Off Overall Testing’, ensuring that the agreement provides better entitlements than the relevant award. Employers must also demonstrate compliance for each pay period, which significantly increases the administrative burden.

How a workforce management solution adds value

A workforce management solution is foundational for organisations navigating this complexity. Workforce management is more than a system — it’s a strategic compliance partner for employers using annualised salary arrangements.

How a HCM helps you manage annualised salaries:

1. Workforce rules engine: A modern platform can embed award rules and organisational policies to calculate entitlements accurately and continuously.
2. Automated time capture: Workforce management platforms can capture start/finish times and unpaid breaks — key records required for compliance and reconciliation — reducing manual errors and demonstrating due diligence.
3. Reconciliation support: Built-in tools help managers perform the mandatory annual reconciliation, comparing actual award-based entitlements with amounts paid under annualised salary arrangements.

By automating time rules, supporting annual audits and capturing detailed workforce data, using a workforce management platform reduces risk and builds confidence that entitlements are met throughout the year.

How HCM and payroll add value

HCM and payroll is central to handling annualised salary arrangements correctly. A modern HCM enables your business to streamline employee management, policy acknowledgements and compliance tracking at the click of a button. Meanwhile, without a compliance-focused payroll processing solution you risk underpayments, fines, or enforcement action by the Fair Work Ombudsman.

Key responsibilities in annualised salary compliance:

1. Payroll must calculate and pay annualised wage arrangements in line with award conditions and employer-employee agreements.
2. Employers need accurate records of hours worked, including unpaid breaks, so payroll can validate that annualised salaries meet minimum award entitlements.
3. When employees exceed “outer limit” hours (i.e., maximum ordinary, overtime or penalty hours included in the annualised salary), payroll must apply the correct award rates for additional hours.

Challenges without a workforce management solution:

Compliance requires:

• Accurate policy interpretation
• Continuous tracking of hours
• Timely micro-adjustment for overtime/penalty entitlements
• Reconciliation of annualised salary against award-based totals

Without workforce management solutions businesses can fall short in these areas, increasing the risk of underpayment exposure and legal penalties. Recent cases have highlighted that improper offsetting or a lack of detailed records can shift the burden of proof onto employers.

Role of automation

Automated systems reduces manual errors and ensures pay runs reflect real earnings and entitlements. Payroll systems that integrate with time records also facilitate compliance reporting and reconciliation, which are key for audit readiness and transparency.

The Importance of Integrated Time, Payroll and HCM in Annualised Salary

The complexity of annualised salary compliance — from tracking hours to overtime management — makes a siloed HR or payroll setup insufficient. Organisations need an integrated suite that connects workforce management, payroll and HCM data.

Why integration matters

1. Accurate pay outcomes: Time records feed directly into payroll and HCM, ensuring actual hours interact correctly with award entitlements and annualised salary calculations.
2. Reduced compliance risk: Integrated systems automatically enforce modern award rules, calculate entitlements and issue alerts when thresholds (e.g., outer limits) are exceeded.
3. Simplified reconciliation: Integrated reporting helps employers perform required annual audits of annualised salary arrangements by comparing actual work patterns with pay outcomes.
4. Better recordkeeping and proof: With electronic time capture tied to payroll and HCM, companies maintain a single source of truth— critical in the event of Fair Work reviews or legal scrutiny.

Strategic value

Integrated systems not only deliver compliance but provide insights into labour costs, staffing patterns and workforce productivity — essential for workforce planning and financial forecasting.

FAQs