Annualised salary: does it cover overtime?

An annualised salary can cover overtime if the arrangement is valid and the employee receives at least their applicable Award entitlements. The checks depend on the arrangement: an Award annualised wage clause has its own reconciliation rules; a contractual set-off generally needs to work each pay period. A salary figure alone does not settle it.

So the salary figure on its own tells you nothing. A $66,000 salary can be well above the Award at 38 hours a week and thousands short at 45.

Two ways a salary can cover overtime

Modern Awards are made under the Fair Work Act 2009 (Cth). The Award sets the floor the salary is tested against. There are two ways a salary can sit on that floor, and they are checked differently. The Fair Work Ombudsman says annualised wages are different to being paid a salary under an employment contract.

Read your own salary clause against this table. Saying "inclusive of all Award entitlements" does not, by itself, establish a valid Award annualised wage arrangement or an effective contractual set-off.

The set-off column comes from a 2025 Federal Court case about salaried supermarket managers. The court held the set-off clauses were only effective to discharge obligations under the Award within a single pay period. A surplus in one fortnight could not cover a shortfall in another.

The practical result: without an annualised wage clause, test the salary against every pay period, not once a year.

What an annualised salary agreement has to say

Start with the particular Award. These three clauses cover full-time employees, but their paperwork is not identical.

The 25% minimum is a starting floor, not proof that the salary covers the hours worked. Each clause also requires a comparison with actual Award entitlements and payment of a shortfall within 14 days.

Under the Clerks clause, the employer sets the outer limits in writing: ordinary hours attracting penalties and overtime hours that the annualised wage can absorb in a pay period or roster cycle. Hours beyond either limit must be paid separately in the relevant pay period.

Hospitality and Restaurant use fixed absorption thresholds, averaged over the roster cycle: 18 penalty-rate ordinary hours and 12 overtime hours a week. For the 18-hour threshold, Hospitality excludes hours from 7 pm to midnight; Restaurant excludes 10 pm to midnight. Hours above those thresholds attract additional payment. These are salary absorption limits, not absolute limits on working hours. The rules on reasonable additional hours and the Award’s rostering requirements still apply.

All three require records of start and finish times and unpaid breaks, signed or acknowledged as correct by the employee each pay period or roster cycle. Keep the applicable written notice or agreement too.

Salary, hours, Award: why one alone shows nothing

Each piece looks fine on its own. That is why the underpayment goes unnoticed.

The salary sits comfortably above the Award minimum weekly wage. The hours are what the role needs. The Award rates are published and correct in payroll.

The gap only appears when you multiply the hours actually worked by the Award rates, and compare the result with the salary. That calculation needs the time records, not the contract.

Two things move the answer without anyone changing the salary. Hours creep up as the business grows. And Award rates can change after an annual wage review. The 2026 increase of 4.75% applies from the first full pay period starting on or after 1 July 2026. Check the applicable rate and classification, including any separate changes.

The Ombudsman says to review an annualised wage when award entitlements or pay rates change, as well as every 12 months. A salary set in 2025 has had the floor move underneath it.

The 12-month annualised salary reconciliation, worked through

The numbers here are illustrative. The rate is not the current rate for any Award classification.

A full-time office coordinator starts on an annualised salary of $66,000 on 1 October 2025. The Award rate used is $30.00 an hour for 38 ordinary hours. At 38 hours, the Award comes to $59,280 a year. The salary is about 11% above it.

The role grows. She works 45 hours a week: 38 ordinary and 7 overtime. Assume every overtime hour is paid at 150%. For this simplified example, the increased rates apply for the final 13 weeks. Rounding the 4.75% increase gives an ordinary rate of $31.43 and a 150% rate of $47.15. Actual payroll must use the applicable published Award rates and pay-period commencement date.

The first 12-month review falls on 30 September 2026. She worked overtime in 46 of the 52 weeks.

To keep the arithmetic readable, this treats the 52 weeks as paid ordinary-hour equivalents and leaves out leave loading, allowances and penalty rates. It assumes all overtime is within the written outer limit in each relevant period. Actual reconciliation must include all applicable entitlements; overtime above the outer limit must already have been paid separately.

The salary covered every ordinary hour, with $6,013.58 to spare. That surplus paid for less than half the overtime. The 1 July rise made the gap wider.

Under the clause, the employer pays her $8,641.97 within 14 days of the review.

What you owe when the salary falls short

The difference. The three Award clauses above require a shortfall to be paid within 14 days of the relevant reconciliation. Check the trigger table: Hospitality and Restaurant also require reconciliation when the annualised wage agreement terminates.

Separately paid hours. Any hours past the outer limits should already have been paid in the pay period they were worked. Say her outer limit was 16 overtime hours a fortnight. An 18-hour fortnight means 2 hours paid on top of the salary, then.

Super on the shortfall. Super guarantee under the Superannuation Guarantee (Administration) Act 1992 (Cth) is 12%. Since 1 July 2026 it is paid on qualifying earnings. Under Payday Super, contributions must reach the fund within 7 business days of payday.

The ATO says overtime payments are not qualifying earnings. But only when the overtime is clearly identifiable. If you can't distinctly identify it, all hours worked are treated as ordinary hours. The ATO says the same rules apply to an annualised salary.

For the example, assume the whole shortfall represents identifiable overtime and no Award, enterprise agreement or other applicable term requires additional super on that overtime. On those assumptions, the statutory super guarantee on that component would be $0. If the payment is instead ordinary-time earnings that forms part of qualifying earnings, 12% of $8,641.97 is $1,037.04.

That is not a choice made by labelling a payslip. The hours, applicable instrument and wage calculation must support the classification. The ATO’s qualifying earnings examples also show that an industrial agreement can require super on overtime. Check that separately. Shift loadings relating to ordinary hours are generally included; payments relating wholly to overtime need separate treatment.

If there is no annualised wage clause. A contract salary with a set-off clause is tested each pay period. In the example, one fortnight after 1 July looks like this:

• salary paid: $2,538.46

• Award for 76 ordinary hours at $31.43 and 14 overtime hours at $47.15: $3,048.78

• shortfall in that pay period: $510.32

That amount was owed for that pay period. A top-up at the end of the year doesn't change that it was short at the time.

Rewriting the salary clause

The clause decides whether the check is even possible.

Wording that does not establish an Award annualised wage arrangement:

4.1 Your salary is $66,000 per annum, inclusive of all overtime, penalty rates, allowances and other entitlements under any applicable award.

This wording alone identifies neither the Award mechanism nor the calculation and outer limits. It does not establish the required notice, record-keeping or reconciliation process. Whether it works as a contractual set-off is a separate question. Payroll also needs evidence of how the salary and any overtime component were calculated.

A more useful drafting structure for the Clerks Award:

This is an illustrative structure for review, not a completed employment clause. Fill in the amount, classification, calculation schedule and limits before using it. The $66,000 in the example is insufficient; retaining that amount with better wording would not fix the underpayment. Even the example’s $74,641.97 excludes other possible entitlements and is not a recommended salary for the next year.

4.1 Your annualised wage is $[calculated annual amount], excluding employer superannuation contributions, paid fortnightly under clause 18 of the Clerks—Private Sector Award 2020. Your classification is [classification]. The arrangement starts on [date].

4.2 It satisfies the provisions selected and identified in the attached calculation schedule from clauses 16 (minimum rates), 19 (allowances), 21 (overtime), 24 (penalty rates) and 32.3 (annual leave loading).

4.3 The attached schedule forms part of this written notification. It identifies each included component, the applicable rates and effective dates, the calculation method and annual dollar amount, and the overtime and penalty assumptions used to reach the total wage.

4.4 In each fortnightly pay period, the outer limits absorbed by the wage are [number] ordinary hours attracting penalty rates and [number] overtime hours. Hours beyond either limit will be paid separately under the Award in that pay period.

4.5 We will keep records of your start and finish times and unpaid breaks. You will sign or acknowledge those records as correct in writing each pay period.

4.6 We will reconcile the annualised wage against your Award entitlements each 12 months from commencement and when employment ends, paying any shortfall within 14 days. We will also review the calculation when rates, duties or working patterns change and adjust the arrangement as needed to meet the Award.

The calculation schedule needs more than “38 ordinary hours plus 7 overtime hours”. Complete a row for every included component:

The assumptions must reflect the actual role. A margin does not remove the need for time records, additional payments above the outer limits or reconciliation. Hospitality and Restaurant require their own written agreements, minimum amounts and terms. For the rest of the contract, see what to check before you send an employment contract.

How to check your salaried staff

1. Find the Award. Check whether it has an annualised wage clause, and which clause number.

2. Check the written arrangement. Is the required notice or agreement in place, with the covered provisions, calculation details where required, outer limits and reconciliation triggers?

3. Pull the time records. Start and finish times and unpaid breaks, confirmed by the employee each pay period or roster cycle, as required.

4. Run the numbers. Hours actually worked at the Award rates, including increases from the applicable pay period, against salary paid.

5. Pay and record any shortfall. Apply your Award’s deadline; the three clauses above require payment within 14 days. Keep records supporting the overtime classification and check the super treatment. A payslip label alone is not enough.

6. Reset the clause. If the salary no longer fits the hours, change the salary, the hours or the arrangement.

Pay slips for salaried employees must also show the annual rate of pay.

When to call a lawyer

The shortfall goes back years. How you calculate and disclose back-pay has consequences. Get advice before you write to the employee.

The Award has no annualised wage clause. A set-off arrangement needs care. The Ombudsman says employers should seek independent advice before attempting one.

A claim or an Ombudsman inquiry has started. Then the time records are evidence, and missing ones work against you.

What this doesn't cover

Enterprise agreements, which set their own salary terms. Employees no Award covers, where the salary must meet the National Minimum Wage and the National Employment Standards. High-income employees with a guarantee of annual earnings. Part-time and casual employees, who the three clauses above exclude.

Sources checked and draft revised 10 October 2026, against the annualised wages and salaries and record-keeping pages on fairwork.gov.au, clause 18 of the Clerks—Private Sector Award 2020, clause 24 of the Hospitality Industry (General) Award 2020 and clause 20 of the Restaurant Industry Award 2020, the Annual Wage Review 2026 decision on fwc.gov.au, the Payday Super and qualifying earnings pages on ato.gov.au, and the Federal Court's judgment in [2025] FCA 1092. Awards are varied from time to time, so check the current Award before relying on a clause number.

The salary clause is where the check starts. Upload the employment contract you use for salaried staff. The salary, hours and Award clauses are read together, and a clause that can't support the review comes back rewritten.