In short
A modern award applies because it covers the work, not because of the contract or the salary. Only a written guarantee of annual earnings, given and notified in time, or an enterprise agreement, stops it applying, and even then the National Employment Standards and unfair dismissal protection remain.
- A high salary alone never switches off an award.
- Discretionary bonuses and superannuation do not count towards the threshold.
- A salary paid for ordinary hours cannot be set against an overtime claim.
The award applies because of the work, not because of the contract
A modern award binds an Australian employer because the award covers the work, and the employment contract has nothing to do with it. A German parent arriving in Australia reasonably expects the written contract to define the relationship, as it largely does at home. Here the contract sits underneath a separate instrument that neither party chose and neither party can vary by agreement.
The mechanism is short. A modern award applies to an employer and employee if the award covers them, the award is in operation, and no other provision of the Act displaces it: Fair Work Act 2009 (Cth) s 47(1). An award covers them if it is expressed to do so: s 48(1). Contravening a term of an applicable award is unlawful: s 45.
Nothing in that chain asks what the contract says. Section 46(1) puts it the other way round: an award imposes obligations on a person, and a person contravenes it, only where the award applies to them. So the question is never whether the parties adopted the award. It is whether the award reaches the work. Award coverage is decided by what the employee does, and the contract is evidence of that at best.
● Hover or tab a box to see what it decides
Select a boxCoverage and application are different questions, and the difference decides both the money and the dismissal risk.
Figure 1. The exit most employers believe they have taken is not an exit, and the real exit leaves the standards and the dismissal protection standing.
Law current at. This article states the Fair Work Act 2009 (Cth) at Compilation No. 73, which commenced on 7 July 2026, and the four modern awards discussed as consolidated by the Fair Work Commission to 1 July 2026. A variation determination made after those consolidation dates would not be reflected here. Award minimum rates and the high income threshold both move on 1 July each year, so every figure below carries its date.
Award coverage often has nothing to do with your industry
Coverage is often occupational rather than industrial, so a manufacturing group can be bound by an award about clerical work. The Clerks Award (MA000002) covers private sector employers throughout Australia in relation to employees wholly or principally engaged in clerical work, and those employees. It does not ask what the business makes or sells.
It gives way where the employer is already covered by an award containing clerical classifications, and it lists a set of industry awards it stands aside for. Which of those applies to a particular office administrator in a particular business is a classification question and not a general one, which is exactly why it is worth asking before the first payroll run rather than after the first claim.
Where no industry or occupational award fits, there is a residual award, and its exclusions are narrower than an executive expects. The Miscellaneous Award (MA000104) covers employers and their employees in its listed classifications who are not covered by any other modern award. Its main exclusion reads:
The award does not cover managerial employees and professional employees such as accountants and finance, marketing, legal, human resources, public relations and information technology specialists.
Read that as a warning rather than a comfort. It takes the finance manager and the human resources lead outside the residual award. It leaves the warehouse staff, the customer service team, the technicians and the drivers inside it, and those are usually the people whose hours move.
Engineers and scientists are covered, and since 2023 they are paid for overtime
Professional engineers and professional scientists are award-covered in Australia, and since 16 September 2023 the award covering them has required payment for hours beyond thirty-eight a week. For a German engineering or industrial group this is usually the single most expensive surprise in the system, because the German instinct is that a qualified professional on a salary is outside collective wage regulation altogether.
The Professional Employees Award (MA000065) covers employers in relation to employees performing professional engineering and professional scientific duties who fall within its classification schedule. Two limits matter and both are easy to read past. Information technology employees are covered by a different limb, which requires the employer itself to be principally engaged in the information technology, quality auditing or telecommunications services industries, so the in-house IT staff of a machinery manufacturer are not caught by this award. And the classification schedule applies only where the employee is not employed in a wholly or principally managerial position.
The overtime clause was inserted with effect from 16 September 2023. Its reach into modern working habits is deliberate:
This must include work on or in connection with call-backs and work performed on electronic devices or otherwise remotely.
An Australian engineer answering the parent company in Germany at seven in the evening is doing work the award counts. Two points of precision, because the clause is often reported loosely. The rate for those hours is the award minimum hourly rate, not a premium, so this is not time and a half. And penalty rates do apply on top for unsociable hours: for full-time and part-time employees, 125 per cent of the minimum hourly rate before 6 am and after 10 pm from Monday to Saturday, and 150 per cent on a Sunday or a public holiday. Casual rates are higher again.
Above. The award reaches the work, not the job title. Whether these hours attract overtime is decided by the classification the work falls into.
This award, and only this award among the four discussed here, then offers a buy-out:
The following award provisions will not apply to employees who have a contractual entitlement to an annual salary which exceeds the appropriate minimum annual wage prescribed in clause 14.1 by 25% or more
Note what that is and is not. It is a contractual entitlement to an annual salary, measured against this award's own minimum, and it switches off four clauses: overtime, time off instead of overtime, penalty rates and the associated record keeping. Everything else in the award keeps running. Whether a discretionary bonus or a superannuation-inclusive package counts towards the twenty-five per cent is not answered by the clause, and it is a question worth settling in writing before it is tested.
What a high salary does not buy
Paying an employee more than the high income threshold does not switch off a modern award. A written guarantee of annual earnings does, and it has to be done in a particular way and in a particular order. This is the misconception that produces the largest liabilities, because it feels like the sort of thing a generous salary ought to fix.
A modern award does not apply to a high income employee: s 47(2). But an employee is a high income employee only if the employee has a guarantee of annual earnings whose annual rate exceeds the threshold: s 329. And a guarantee of annual earnings is a defined instrument, not a description of a salary. Under s 330(1) it requires an undertaking in writing to pay an amount of earnings over twelve months or more, which the employee agrees to accept, given before the start of that period and:
within 14 days after: (i) the day the employee is employed; or (ii) a day on which the employer and employee agree to vary the terms and conditions of the employee's employment
There is a second document as well, and it is missed even more often than the first. Before or at the time of giving the guarantee, the employer must notify the employee in writing that a modern award will not apply while the guaranteed rate exceeds the threshold: s 328(3). That notice is a civil remedy provision in its own right. A guarantee also cannot be given where an enterprise agreement applies at the start of the period, and an enterprise agreement starting later brings the guaranteed period to an end.
Step 1. Before the period startsThe undertaking and the employee's agreement must both be given before the start of the twelve month period the guarantee covers. A guarantee cannot be backdated onto a period already running.
Figure 2. Guarantees usually fail on the sequence rather than on the amount.
The threshold itself is $190,100 from 1 July 2026, having been $183,100 for the year to 30 June 2026, and it is adjusted every 1 July. So the practical position is uncomfortable and entirely ordinary: an employee on $220,000 with a well drafted German-style contract and no guarantee is covered by the award in full, and an employee on $195,000 with a guarantee given on day twenty is in exactly the same position.
The bonus problem: what counts as earnings
Only earnings within the statutory definition count towards the threshold, and a typical German package contains two things that do not count at all. An employer can execute the guarantee correctly, on time, with the notice, and still find the arithmetic fails.
Earnings include wages, amounts applied or dealt with on the employee's behalf or as the employee directs, and the agreed money value of non-monetary benefits: s 332(1). They do not include payments whose amount cannot be determined in advance, reimbursements, or compulsory superannuation contributions: s 332(2) and (4). The Act's own note to that subsection names the usual suspects: commissions, incentive-based payments and bonuses, and overtime unless the overtime is guaranteed.
What this means for you. A package of $160,000 base, a $40,000 discretionary bonus and superannuation on top looks like $200,000 and tests at $160,000. It does not clear the threshold, so the guarantee does not make the employee a high income employee, and the award applies to a person the employer believed was outside it. Making the bonus contractual and determinable in advance changes the answer; describing it as a target does not.
The protection a guarantee does not remove
A valid guarantee stops the award applying, and the employee stays protected from unfair dismissal, because that protection turns on coverage rather than on application. The two tests use the same dollar figure, which is why they get treated as one thing, and they are not one thing.
A person is protected from unfair dismissal if, among other conditions, a modern award covers the person: s 382(b)(i). Coverage is determined under s 48 and is unaffected by the guarantee. What s 47(2) removes is the award's application. The high income threshold defeats unfair dismissal protection only through a different limb, s 382(b)(iii), which is available where no award covers the person and no enterprise agreement applies to them.
So the engineer on $250,000, with an impeccable guarantee, whose work falls within a classification in the Professional Employees Award, is outside the award's rates and squarely inside the unfair dismissal jurisdiction. An employer that has bought advice on the guarantee and then dismisses on the assumption that it bought more than it did has made the expensive half of this mistake.
Table 1. What a valid guarantee of annual earnings does and does not do.
| Obligation | After a valid guarantee | Source |
|---|
| Award minimum rates, overtime, penalties, loadings, allowances | Do not apply | s 47(2) |
|---|
| Award classification and record duties | Do not apply | s 47(2) |
|---|
| National Employment Standards | Continue to apply | ss 43(1), 44, 61 |
|---|
| Unfair dismissal protection | Continues, because the award still covers | ss 48, 382(b)(i) |
|---|
| Employee records and pay slips | Continue to apply | ss 535, 536 |
|---|
| Obligation to comply with the guarantee itself | Applies, and is enforceable | s 328(1), (2) |
|---|
The standards nothing displaces
The National Employment Standards are a separate floor from the award, so no salary, no guarantee and no contract removes them. An employer that has correctly concluded no award applies has answered one question of two.
The Act says so in its own structure: the main terms and conditions of employment provided under the Act are the National Employment Standards and any modern award, enterprise agreement or workplace determination that applies: s 43(1). The standards themselves cover maximum weekly hours, requests for flexible working arrangements, casual employment, parental leave, annual leave, personal, carer's, compassionate and paid family and domestic violence leave, community service leave, long service leave, public holidays, superannuation contributions, notice of termination and redundancy pay, and the Fair Work Information Statement: s 61(2). An employer must not contravene them, and doing so is a civil remedy provision: s 44.
For a German employer the notice and redundancy standards are the ones that most often collide with the contract, because the German drafting convention of a notice period expressed in months, tied to length of service, is not the Australian scheme and does not necessarily satisfy it.
Annualised salaries: available, conditional, and different in every award
An annualised salary is a real mechanism in Australian awards, and its conditions are set award by award, so a single group-wide salary policy will comply in one part of the business and fail in another. This is where a German group's instinct for one clean policy across the whole workforce does the most damage.
Under the Clerks Award an employer may pay a full-time employee an annualised wage in satisfaction of listed award provisions. It must then advise the employee in writing, and keep a record, of the annualised wage, which provisions it satisfies, the method of calculation including each separate component and any overtime or penalty assumptions used, and the outer limit number of penalty-attracting ordinary hours and of overtime hours the employee may work without being paid more. Hours beyond either outer limit are not covered by the annualised wage and must be paid separately.
Two further conditions have teeth. The annualised wage must be no less than the award would have produced for the work actually performed. And a reconciliation is required each twelve months from the commencement of the arrangement, or on termination of employment, with any shortfall paid within fourteen days. The termination limb is the one that produces disputes, because it falls due exactly when goodwill has run out.
Then there is the record the arrangement is built on:
The employer must keep a record of the starting and finishing times of work, and any unpaid breaks taken, of each employee subject to an annualised wage arrangement for the purpose of undertaking the comparison required by clause 18.2(b). This record must be signed by the employee, or acknowledged as correct in writing (including by electronic means) by the employee, each pay period or roster cycle.
An employer that pays an annualised wage and keeps no signed record of hours has not implemented the clause. It has simply paid a salary, and it will argue any later claim without the evidence the clause required it to create.
The Manufacturing Award (MA000010) does the same job on different terms. Its annualised wage clause is available only for an employee who is a Supervisor, Trainer or Coordinator at Level I or II, and it requires a written agreement rather than written advice. So the same policy, rolled out to the office and to the plant, is a valid arrangement in one place and no arrangement at all in the other.
Table 2. The three flexibility mechanisms, and what each actually requires.
| Mechanism | What it does | What it requires |
|---|
| Guarantee of annual earnings | Stops the award applying while the rate exceeds the threshold | Written undertaking, employee agreement, before the period and within 14 days, plus a separate written notice, and earnings above $190,100 as at 1 July 2026 |
|---|
| Annualised wage arrangement | Absorbs listed award payments into one figure | Award-specific. Written advice or a written agreement, stated outer limits, a no-disadvantage floor, annual and on-termination reconciliation, and signed records of hours |
|---|
| Individual flexibility arrangement | Varies the application of specified award terms for one employee | Genuine agreement without coercion, made only after employment starts, initiated by a written proposal, and limited to the terms the award names |
|---|
Classification decides the money, and it is not the job title
Where an award applies, classification sets the minimum rate, and classification turns on the competency the work requires rather than on the title in the contract. It is the step most often skipped, and every figure downstream depends on it.
The Clerks Award puts the test plainly in its classification schedule. The classification characteristics are the primary guide, because they indicate the level of knowledge, the comprehension of issues and procedures required, and the level of supervision or accountability of the position. Then:
The key issue to be looked at in properly classifying an employee is the level of competency and skill that the employee is required to exercise in the work they perform, not the duties they perform as such.
Calling someone an Office Manager does not classify them, and neither does the German group's internal grading system. Getting this wrong is not a technicality: it moves the minimum rate, and with it every overtime, penalty and loading calculation built on top for as long as the error runs.
Why a salary paid for ordinary hours defeats your own defence
Where an underpayment is alleged, whether a generous salary can answer it depends on what the payment was appropriated to, so a contract stating that the salary is remuneration for ordinary hours destroys the employer's best argument. This is the drafting point in the article, and it is counter-intuitive enough that careful contracts get it wrong precisely because they are careful.
The principles were collected by the Western Australian Industrial Appeal Court in James Turner Roofing Pty Ltd v Peters, and the same line of authority was reviewed and applied by a Full Court of the Federal Court in Linkhill Pty Ltd v Director, Office of the Fair Work Building Industry Inspectorate. Two of the five principles decide most cases:
However, if the whole or any part of the payment is appropriated by the employer to a particular incident of employment the employer cannot later claim to have that payment applied in satisfaction of his obligation arising under some other incident of the employment. So a payment made specifically for ordinary time worked cannot be applied in satisfaction of an obligation to make a payment in respect to some other incident of employment such as overtime, holiday pay, clothing or the like even if the payment made for ordinary time was more than the amount due under the award in respect of that ordinary time.
James Turner Roofing Pty Ltd v Peters [2003] WASCA 28, [21] (Anderson J).
The fourth principle is the other half: a periodic sum paid as wages is on its face an appropriation to all the wages due for the period, whatever their character, unless it has been specifically allocated to something narrower. So silence helps the employer here and precision hurts it.
The consequence for a German-drafted contract is direct. A clause reading, in the ordinary German style, that the annual salary is paid as consideration for the employee's regular weekly working time is an appropriation to ordinary hours. It converts an over-award salary into a payment that cannot be set against an overtime claim, and it does so in the very sentence intended to make the arrangement clear.
Records decide who has to prove what
An employer that did not keep the prescribed records carries the burden of disproving an underpayment allegation rather than the employee carrying the burden of proving it. The evidentiary position, not the substantive law, is usually what decides these claims.
An employer must make and keep prescribed employee records for seven years and must give pay slips: ss 535(1) and 536(1). Where it failed to do so and an applicant makes an allegation in proceedings about a contravention of the National Employment Standards, of a modern award or of the payment provisions, s 557C reverses the onus: the employer has the burden of disproving the allegation, unless it provides a reasonable excuse.
Put that beside the annualised wage clause and the picture completes itself. The award required signed records of start and finish times each pay period. The employer that did not create them faces a claim in which it must disprove the hours alleged, using records it was obliged to keep and does not have.
What it costs when this is wrong
Award and standards contraventions carry civil penalties per contravention, they are uplifted for larger employers and for contraventions tied to an underpayment, and intentional underpayment is now a criminal offence. The figures are structural rather than dramatic, and the structure is what makes them large.
A contravention of the award provision carries a maximum of 60 penalty units, a penalty unit being a fixed statutory amount that is indexed from time to time, or 600 penalty units where the contravention is serious, meaning the person knowingly contravened or was reckless. For a body corporate the maximum is five times that. Where the body corporate is not a small business employer at the time the application is made, it is five times that again. And where the contravention is associated with an underpayment and the applicant elects that basis, the maximum is the greater of that figure and three times the underpayment: ss 539, 546 and 557A. A person involved in another's contravention is treated as having contravened it themselves: s 550, which is how a local director or human resources manager becomes personally exposed.
Whether the Australian entity is a small business employer is not answered by counting its own staff. A small business employer employs fewer than fifteen employees, and:
For the purpose of calculating the number of employees employed by the employer at a particular time, associated entities are taken to be one entity.
For a German group with more than one Australian entity, and for a group considering how its parent is treated, that provision decides both the penalty uplift and the availability of the compliance code described below. It is worth resolving deliberately rather than assuming.
Since the criminal offence was introduced, an employer commits an offence where it is required to pay an amount under the Act or an award and its conduct results in a failure to pay in full when due. The fault element for the conduct and the failure is intention, so honest error and negligent misclassification are not caught, although absolute liability attaches to the existence of the obligation itself, which means the offence does not require the employer to have understood that the award applied. On conviction an individual faces up to ten years imprisonment or a fine or both, and a body corporate a fine which, where the underpayment can be determined, is calculated on the greater of three times that amount and a large fixed maximum. Only the Director of Public Prosecutions or the Australian Federal Police may prosecute, within six years. Where the Fair Work Ombudsman is satisfied that a small business employer complied with the Voluntary Small Business Wage Compliance Code, it must not refer the conduct for prosecution, although civil enforcement, enforceable undertakings and compliance notices are all unaffected.
Where the legal question stops and the accountant starts
Award coverage, classification, the guarantee and the contract are legal questions, and the numbers around them are not. We advise German groups establishing and running Australian subsidiaries on exactly this set of questions, alongside the corporate and commercial work that sits around them, and we say plainly where a tax accountant is needed, because discovering the boundary later is expensive.
Superannuation guarantee, payroll tax, pay-as-you-go withholding and the treatment of an inbound secondee are accounting and tax questions, not award questions, and they interact with the remuneration structure the award analysis produces. The firm works with an accounting practice on those, through the German Professional Services Alliance, and can introduce one. Where a remuneration structure is being designed rather than repaired, the accountant's numbers are usually needed before the contract is drafted rather than after.
Also on the checklist, and outside the scope of one article: state and territory long service leave, workers compensation in each state of operation, the rules for engaging casuals, and the Fair Work Ombudsman's compliance machinery, which includes inspectors' civil proceedings, enforceable undertakings and compliance notices.
What to do now
The diagnostic is short, and it is worth running before anyone alleges anything, because every item on it is cheaper to fix prospectively. An audit of this kind on a workforce of twenty takes a few days and is bounded work.
- List every role and ask which award covers the work, occupation by occupation rather than by looking at the industry the business is in. Include the people nobody thinks of as award staff.
- Classify each covered employee against the award's own characteristics, on the competency the work requires, and write down the reasoning.
- Find the guarantees. For every employee treated as outside an award, locate the written undertaking, the employee's written agreement, the date each was given, and the separate s 328(3) notice. A guarantee that exists only as a salary figure is not a guarantee.
- Test the guaranteed amount on earnings alone, excluding discretionary bonuses and compulsory superannuation.
- Read the salary clause in each contract for an appropriation to ordinary hours, and reconsider it.
- Check the annualised wage paperwork against the specific award: outer limits stated, calculation method recorded, reconciliation done at twelve months and on termination, and signed records of start and finish times each pay period.
- Do not assume small business employer status. Count associated entities.
- Fix records first. They decide who bears the onus in any dispute that follows.
Where the audit finds an underpayment, the sequence matters, and the choices about disclosure, back-payment and the compliance code are best made before anything is communicated to the workforce.