Working out a remuneration package

A remuneration package includes salary or wages but may also contain other benefits or rewards such as accommodation, a car, telephone, gas or electricity allowances, meals or milk. Working out a good remuneration package will help to attract, retain and encourage the right employees.

Remuneration packages should suit the business situation, and reflect the responsibilities and duties of the position and the skills and abilities of the employee. To attract and retain staff it is also important to consider current market rates being offered for similar positions.

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Pay

Pay is often called wages or salary. The term ‘wages’ usually refers to the monetary payment made to employees who are paid on the basis of time worked (by the hour, day or week). A salary is generally accepted to be the term used when employees are paid a set amount which is not paid on the basis of time actually worked.

Employee classification

All employees, whether paid wages or a salary, should be given a classification (often based upon an award) which accurately reflects their skills and experience and the work allocated to the employee. As a minimum, wages or salary paid to the employee should meet award rates of pay which apply to the particular classification.

Employee classifications
	There are five employee classifications which apply to the dairy industry in the federal Pastoral Award 2010.

Award responsibilities and entitlements apply regardless of the employee’s title
	Because managers are often excluded from awards some people think that if they classify an employee as a manager they can avoid award responsibilities and entitlements. This is not the case. At law, the award responsibilities and entitlements will continue to apply to the work done by the employee regardless of the employee’s title.

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Hours of work

When working out a remuneration package you will need to determine the number of hours the employee will be required to work each week and whether these hours will be constant throughout the year or vary with seasonal demands.

Awards and federal and state industrial laws lay down maximum hours which can be worked for the minimum wage and the days on which those hours can be worked before attracting penalty rates.

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Types of pay

Pay for ordinary hours

Ordinary hours of work are usually the hours agreed to between the employer and the employee as being the hours which will be worked before any overtime or penalty rates are payable.

Under the federal industrial laws, if there is no agreement about ordinary hours for award or agreement free employees the ordinary hours are 38 per week for full-time employees and a maximum of 38 for part-time employees.

The Pastoral Award 2010 specifies ordinary hours as being 152 hours over a consecutive  four-week period.

Ordinary hours of work is an important concept in remuneration, because it is often used to calculate the various leave entitlements and termination payments. Ordinary pay for your employee may be the minimum award rate or federal or state minimum wage or an agreed higher rate.

Overtime pay

Overtime payments are a type of penalty rate and usually involve an additional percentage of the ordinary rate of pay to compensate the employee for working in excess of the ordinary number of hours or outside the ‘spread of ordinary hours’. The spread of ordinary hours refers to the normal span of hours at a particular workplace or as specified in the relevant award.

Enterprise bargaining enables employers and employees to put in place a workplace agreement which allows for the payment of a flat rate of pay for all hours worked even if the hours of work exceed the ordinary hours of work specified in the award which would otherwise be paid as overtime. 

Agreements to pay a flat rate could breach the award
	Any agreement, other than a formal workplace agreement or an individual flexibility agreement,  to pay a flat rate of pay for all hours worked regardless of award entitlements will be a breach of the award and can lead to a claim for underpayment of wages and prosecution of the employer.

Pay for weekend work and public holidays

Payment for working on days other than the ordinary days of the business (e.g. on weekends and public holidays) is another form of penalty rate.

Awards usually specify the level of payment for work done on weekends and public holidays.

Enterprise bargaining enables employers and employees to put in place a workplace agreement which allows for the payment of an increased rate of pay for all hours worked regardless of the day of the week even though the award requires penalty rates to apply to these days.   

Agreements to pay a flat rate could breach the award
	Any agreement, other than a formal workplace agreement or an individual flexibility agreement, to pay a flat rate of pay for all hours worked regardless of award entitlements, will be a breach of the award and can lead to a claim for underpayment of wages and prosecution of the employer.

Accumulating hours of overtime
	Most farms have a seasonal variation in workload. It is difficult to provide consistent hours of work for employees every week of the year. Accumulating hours of overtime instead of paying them out can be valuable for some employees at the quieter times of year or to give them a long weekend or days off to pursue interests off farm.

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Allowances

Provision of wet weather clothing
	Pastoral Award 2010 has an allowance which requires the employer to provide wet weather clothing and footwear. The clothing and footwear provided by the employer remains the property of the employer.

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Bonuses

Share of young stock as incentive

A common incentive for farm employees is to be given a share of the young stock that are raised each year. The stock can stay on the farm and be treated as part of the herd with ownership remaining with the employee. Over time the employee can build up a significant asset that provides a start for his or her own herd. Always have an exit clause in any stock bonus incentives. It is difficult to predict the future and problems may occur when ownership of stock is involved and an employee is leaving.

Pay milkers a percentage of the premium milk payment as incentive bonus
	Another common incentive is to pay milkers a bonus which is a percentage of the premium milk payment that is credited to the proceeds due to quality of milk. This gives an incentive to keep focused on quality as it has a direct impact on the bonus.

Avoid incentive schemes that don’t genuinely reward employee performance

Some bonuses are set up such that there is little ability for the employee(s) to influence them. For example, the number of cow deaths may be related directly to the age of the herd or the transition cow management strategy. If the employee is unable to influence these factors, then no matter how much attention is given to cows at calving the employee will have little impact on death rates. Avoid incentive schemes that don’t genuinely reward employee performance because they lead to disenchantment.

Gratuities

A gratuity is a payment to an employee without conditions or qualifications attached to it. For example, on retirement an employee may be given a certain sum in addition to other entitlements simply in recognition of the work that he or she has performed for the business. Employers should take particular care to ensure that any gratuity is clearly documented in order to avoid confusion with other payments that an employee must receive by law.

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Contract milkers

Contract milkers are often paid ‘by the milking’ and are regarded as contractors rather than employees. From a legal perspective, despite their title, in most cases they will be classified as casual employees and be entitled to some employment benefits including award or federal or state minimum wages.

Employers should also be aware that workers compensation and superannuation laws will more than likely apply to contract milkers.

Share farmers

Entitlements for share farmers will depend upon the terms of the particular share farming arrangement. Go to Share Farming for more details on share farming arrangements. 
 
Workers compensation laws vary between states and territories and owners should be aware that responsibility for workers compensation insurance will more than likely rest with the owner. 

Graeme and Stephanie took on a job share milking in what appeared to be a great opportunity. The farm had just been acquired by the owner and it had been milking 200 cows in a modern herringbone shed. The new owner set them up on a 20% share of the milk income and their only costs were their bike and farm ute. He had promised that they would milk 400 cows with a high input of concentrates. The year got off to a good start and the cows kept arriving. What Graeme and Stephanie had not realised, though, was that the shed had only been designed to milk 200 cows and with 400 going through it took 4 hours, twice a day, for both of them to finish the milking. They were hardly seeing the children in the morning or evening and Graeme was tied up most of the rest of the day feeding out, handling calving cattle and doing other jobs. By the end of 12 months, Graeme and Stephanie had put in a huge effort and did their sums on their pay. Not only had they been working for $8 per hour, but they had not been able to do anything else. A fair proportion of their pay had gone in tax and there was little saved for their efforts. They knew it was time to move on.

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Other benefits

Although remuneration is mostly thought of as wages, the value of accommodation, a car, telephone, gas or electricity allowances, meals or milk and any other benefits can be considered when putting together a total package.

Benefits cannot take the place of minimum award rates of pay and entitlements, or state or federal minimum rates of pay and entitlements but they may be used as part of the calculation for over award payments or payments which are over the minimum rate of pay.

However, such benefits can be used to offset award minimum rates of pay and entitlements in workplace agreements provided a monetary value is able to be given to the benefit and the employee is not worse off financially than under the minimum terms of the award.
 

Residential tenancies laws

All states have residential tenancies laws and some apply to accommodation on farms where the accommodation is not a part of the wider lease of the farming property. These laws lay down notice periods for ending the tenancy, whether bonds can be collected, how much can be charged, and rules regarding repairs and inspections. Some states require written agreements with specific terms. Breaches of these laws attract fines.

Whilst residential tenancy laws can protect both the tenant and the landlord, the notice periods for ending the tenancy can be problematic when an employee is dismissed and accommodation has been part of their remuneration package. It can be particularly problematic if the employee is dismissed summarily for misconduct. Notice periods will continue to apply (usually 60 days up to 120 days) and the only avenue the farmer will have to reduce the period is to go to one of the tenancy tribunals and make an application on the grounds of hardship.

Residential tenancy laws do not usually apply where the tenancy is not ‘for value’ which means that no rent is paid for the accommodation. However, farmers should be aware that including accommodation in a formal workplace agreement, where the accommodation is used as a part of the No Disadvantage Test, may make the tenancy ‘for value’ and thus attract residential tenancy laws. For more information see State Industrial Laws.

Fringe Benefits Tax implications
	There are Fringe Benefits Tax implications for some benefits. Usually accommodation is excluded as are farm vehicles over 1 tonne but advice should be sought from an accountant before including such benefits in a remuneration package or workplace agreement. For more information go to the Australian Taxation Office website http://www.ato.gov.au/

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Superannuation

Superannuation is not technically part of the employment remuneration package as, apart from the exceptions listed below, all employers must pay superannuation for all employees.

However, some employers choose to pay an increased rate of superannuation to attract employees and in this case superannuation may form part of the remuneration package.

The relevant exceptions to the requirement to pay superannuation for employees for the dairy industry are:

• employees paid a salary or wage of less than $450 in a calendar month;
• employees under 18 years of age and working less then 30 hours per week; or
• employees paid to do work of a domestic or private nature for not more than 30 hours a week, for example, a part-time nanny or housekeeper.

The superannuation guarantee legislation requires employers to provide superannuation contributions for employees as a percentage (currently 9%) of their ‘ordinary time earnings’. This amount must be paid to the superannuation provider at least every quarter, and a record kept of all contributions made

Ordinary time earnings are specifically defined in the superannuation guarantee legislation. For example, accrued annual leave, long service leave and sick leave paid as a lump sum on termination are not defined as ordinary time earnings and therefore no superannuation contribution needs to be made when paying out these amounts.

For a list of what constitutes ordinary time earnings go to the superannuation section of the Australian Taxation Office website http://www.ato.gov.au/

Superannuation payments must be made to a complying superannuation fund or Retirement Savings Account (RSA). Employees now have the right to choose which superannuation fund or RSA will receive their superannuation guarantee contributions. It is a good idea to have a complying ‘default’ fund chosen for workers who don’t have a preference for the lodgement of their contributions.  

Definition of an employee for superannuation purposes
	The definition of an employee for superannuation purposes is different to the common law definition of employee. Some contractors you use on the farm may be included.

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Building a package to attract the right person

Once you have determined the relevant minimum amounts of remuneration required by law and any other benefits which you may be able to provide you can begin to work out a package.

In some circumstances it may be more straightforward to work out a package for full-time employees that includes a flat rate of pay taking into account overtime and penalty rates. As this is a variation to the award, the employer and employee must agree to the pay rate as part of an Individual Flexibility Agreement (IFA) or an enterprise agreement. Individual Flexibility Agreements and enterprise agreements must pass the Better Off Overall Test (BOOT) to ensure that the employee is better off overall compared with the award. 

Enterprise agreements must be lodged with Fair Work Australia
	An enterprise agreement must be lodged with Fair Work Australia; however, an Individual Flexibility Agreement can be implemented without ratification as long as it is better off than the award.

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Calculating a flat rate of pay

Step 1

Find the right employee classification in the Pastoral Award 2010.
There are five dairy employee classifications in the award, which are summarised in the table below. 

Training level is an indication only
	Note that the training level shown in the table below is only an indication of what to expect for each job classfication. It is not a requirement for inclusion in a classification or determining pay rates. Pay rates can only be determined using the award classifications.

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Step 2

Find the minimum transitional hourly rate for the employee classification. This will depend on where your farm is located and the way your business was run prior to 1 January 2010.

The minimum transitional hourly pay rates for each classification are summarised below. These pay rates apply from the first pay period after 1 July 2011 until 1 July 2012.

For full details on calculating these pay rates go to Transitional Arrangements.

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Step 3

Use the 'flat rate' calculator to work out the hourly flat rate that takes into account overtime and penalty rates. Note: This calculator is a downloadable Microsoft Excel spreadsheet. You will need to have Microsoft Excel 97 or above installed on your PC.

How to use the flat pay rate calculator... Enter the minimum hourly rate for the position, based on the classification and transitional adjustment. The number of ordinary hours is already entered. It is assumed to be 38 hours as specified in the Pastoral Award 2010. Enter the overtime hours. Enter any hours worked on Sundays that were after the employee had exceeded 152 hours within a 4-week period. Enter number of hours and days rostered to work on public holidays over 12 months. The average hourly rate will be calculated. This rate is the minimum that needs to be paid to pass the BOOT test.

Here is an example of a flat rate of pay ($19.50), calculated using the calculator, for an employee classified as an FLH5 (senior farm hand) and employed on a dairy farm in Victoria that was bound by the Pastoral Industry Award 1998 prior to 1 January 2010. 

 

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Determine the market rate of pay

If you want to attract the right people you need to match market pay rates.

The market rate is, more often than not, above the minimum rate of pay.
 

Consider conditions when comparing pay
	When comparing market rates, it is important to compare similar conditions. For example, many dairy staff are employed on a casual basis, which means that in addition to their ordinary rate of pay they are paid a casual loading of 25%. They are also subject to penalty rates and overtime, so their rates can appear high compared with someone who is employed part time or full time.

These rates are based on the assumption of a typical week of around 50-55 hours and a flat rate of pay that has overtime and penalty rates embedded in the hourly rate. To accurately determine the correct job category, there are descriptions in the classifications table above.

Document roles and responsibilities in position descriptions
	Clarify roles and responsibilities for all people working on the farm by creating position descriptions.

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Calculating salaries for managers

Business managers are award free. They are subject to the National Employment Standards although they are not subject to overtime and penalty rates. There must be an agreement between an employer and employee for them to work reasonable additional hours. Salaries for managers are often calculated on the basis of the herd size. However, this is a guide only as greater levels of responsibilities will command a higher salary. The range of market rates for a business manager are listed in the table above.

Use this Salary Calculator to work out the salary for a manager on your farm.

Note: This calculator is a downloadable Microsoft Excel spreadsheet. You will need to have Microsoft Excel 97 or above installed on your PC.

Although business managers are award free the federal employment contract template can be used to write their contract. In the contract template, change the reference to the 'relevant award' to the National Employment Standards. 

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Consider other benefits

Once you have determined the current market rate you can then add other benefits into the equation.

For instance, the face value of a wage for a dairy farm employee may not appear to be attractive compared with other industries. However, when the total package is measured you may be surprised at its value to the employee.

For example, a wage of $17 per hour for a 45 hour week comes to $40,000. The value of accommodation in rural areas is around $200 per week or $11,000 per year. If you also supply meat and milk and consider the fact that there is no travel cost to and from work, the value of the package is nearly $50,000 or $21 per hour.

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No award or agreement?

Workers compensation