Putting a chef or venue manager on a salary feels like it should simplify payroll. One number, every pay, no penalty rate calculations. What catches employers out is that under the Hospitality Industry (General) Award and the Restaurant Industry Award, a salary doesn’t switch the award off. If you want a fixed annual wage to genuinely cover overtime, penalties and allowances, it has to be set up as an annualised wage arrangement under the award, and the award attaches conditions to it: a minimum loading, limits on the hours it can cover, a written agreement, and an annual reconciliation.
Get those conditions right and an annualised wage is a legitimate, practical way to pay salaried staff in hospitality. Get them wrong and you’re carrying an underpayment that compounds every pay run, in an industry the regulator watches closely.
Annualised wage arrangements at a glance:
- Annualised wage arrangements are available to full-time employees only, and only by written agreement
- The wage must be at least 25% above the employee’s minimum weekly award rate, multiplied by 52
- The wage can only cover up to 18 penalty-rate hours and 12 overtime hours a week on average per roster cycle (the “outer limits”); hours beyond that are paid separately
- You must record start times, finish times and unpaid breaks, and the employee must acknowledge the records each pay period or roster cycle
- Every 12 months (and on termination) you reconcile the wage against what the award would have paid, and make up any shortfall within 14 days
- Award minimum rates rose 4.75% from the first full pay period on or after 1 July 2026, so arrangements set against older rates need re-checking
What is an annualised wage arrangement?
An annualised wage arrangement lets you pay a full-time employee a fixed annual wage that satisfies a bundle of award entitlements, instead of calculating overtime, penalties, allowances and leave loading line by line each pay. The employee gets a predictable wage, and you get a simpler pay run for that employee, provided the arrangement is set up and maintained the way the award requires.
The current rules have applied since 1 September 2022, when the Fair Work Commission replaced the previous annualised salary provisions in both awards. Everything in this guide reflects those rules as they stand today.
Who can be on one?
Full-time employees covered by the Hospitality Award or the Restaurant Award, and no one else. Part-time and casual employees can’t be put on an annualised wage arrangement under these awards, no matter how regular their hours look.
The arrangement is also voluntary in both directions. You and the employee have to agree to it in writing. You can’t impose an annualised wage on an existing employee, though you can make it a condition of a new role and agree it at the point of hiring.
One carve-out to know: under the Hospitality Award, Managerial Staff (Hotels) are excluded from these rules. They sit under the award’s separate salaries absorption clause, which runs with a lighter administrative load. If you’re salarying hotel managers, that clause is the one to read, and it’s worth confirming which clause each salaried employee actually falls under before assuming these rules apply.
How much do you have to pay?
At least 25% above the minimum weekly award wage for the employee’s classification, multiplied by 52.
So for an employee whose classification carries a minimum weekly rate of $1,200 (an illustrative figure, always check the current pay guide):
- Minimum weekly rate: $1,200
- Add the 25% loading: $1,200 × 1.25 = $1,500
- Annualise it: $1,500 × 52 = $78,000 minimum annualised wage
The 25% loading is the entry price, and it buys coverage of the entitlements below up to the outer limits. It doesn’t buy compliance on its own. However generous the wage, the record-keeping and reconciliation obligations still apply in full.
What can the annualised wage cover?
|
Entitlement |
Hospitality Award |
Restaurant Award |
|---|---|---|
|
Minimum award rates for the classification |
Yes |
Yes |
|
Overtime |
Yes |
Yes |
|
Penalty rates |
Yes |
Yes |
|
Annual leave loading |
Yes |
Yes |
|
Yes |
Split shift allowance only |
|
|
Additional public holiday arrangements |
Yes (clause 35.3) |
No |
When the arrangement covers an entitlement, you generally don’t need to calculate and pay it separately each pay period. Anything the arrangement doesn’t cover still gets paid on top in the pay period it arises.
The outer limits: how many hours the wage can absorb
The annualised wage can only cover a set amount of penalty-rate and overtime work. In any roster cycle, the wage covers up to a weekly average of:
|
Outer limit |
Hospitality Award |
Restaurant Award |
|---|---|---|
|
Penalty-rate hours |
18 per week |
18 per week |
|
Evening hours excluded from that count |
7.00pm to midnight, Monday to Friday |
10.00pm to midnight, Monday to Friday |
|
Overtime hours |
12 per week |
12 per week |
The evening exclusion works in the employer’s favour: hours worked in those Monday-to-Friday windows don’t count toward the 18 penalty-rate hours, even though they attract penalties.
When an employee works beyond an outer limit in a roster cycle, the excess hours fall outside the annualised wage. You pay them separately in that pay period, at the employee’s minimum hourly rate plus the applicable penalty or overtime rate, on top of the normal annualised wage.
Take Sofia, a full-time restaurant supervisor on a weekly roster cycle. Her agreement covers the standard outer limits. One week she works 21 penalty-rate hours against the 18-hour outer limit. The first 18 are covered by her annualised wage. The extra 3 hours are paid separately that week at her minimum hourly rate plus the relevant penalty rate.
This is why the outer limits need active monitoring rather than a set-and-forget salary. Your rostering and time records have to be able to tell you, each roster cycle, whether anyone has gone over.
What the written agreement must include
The award is specific about what goes in the document:
- The annualised wage amount
- Which award provisions the wage satisfies
- How the wage was calculated, including a breakdown of each component and any overtime or penalty assumptions used
- The outer limits: the number of penalty-rate and overtime hours the employee can be required to work in a roster cycle without extra payment
The calculation breakdown matters more than it looks. If the arrangement is ever tested, the assumptions you wrote down are what show the wage was built to genuinely cover the employee’s expected pattern of work, including seasonal peaks. The Fair Work Ombudsman publishes an employer’s guide to annualised wage arrangements with a template and checklist built for these two awards.
Records and the annual reconciliation
Two ongoing obligations keep the arrangement compliant:
- Time records, every pay period. Record each employee’s start and finish times and any unpaid breaks. The employee must sign or acknowledge the records as correct, in writing or electronically, each pay period or roster cycle. Keep time and wages records for 7 years.
- A reconciliation, every 12 months. From the date the arrangement started (not the financial year), compare what you actually paid against what the employee would have earned under the award for the hours they worked. The same check is required when the arrangement or the employment ends. Any shortfall must be paid within 14 days of completing the reconciliation.
The reconciliation is mandatory regardless of how far above the minimum you set the wage. A generous salary reduces the odds of a shortfall, and changes nothing about the obligation to check.
Ending an arrangement
Either side can end an annualised wage arrangement at any time by written agreement, or by giving the other party 12 months’ written notice. Once it ends, the employee goes back to being paid under the award for each hour worked, penalties and all, so the payroll setup needs to change the day the arrangement does.
Annualised wage or a salary with a set-off clause?
The award’s annualised wage arrangement isn’t the only way to pay a salary to an award-covered employee. Plenty of hospitality employers instead pay an above-award salary under a common law contract with a set-off clause, which applies the salary against award entitlements as they fall due.
The trade-off is real in both directions. A set-off arrangement avoids the award’s prescribed agreement contents, acknowledgment signatures and fixed reconciliation timetable. What it doesn’t avoid is the underlying obligation: the salary still has to cover everything the award would have paid for the hours actually worked, in each pay period, and a poorly drafted set-off clause can fail entirely, leaving every penalty and overtime entitlement payable on top of the salary. With intentional underpayment now a criminal offence, the informal version of “they’re on a salary, they’ll be fine” is a risk profile most operators shouldn’t carry.
Whichever route you take, the discipline is identical: record the hours, check the salary against the award regularly, and fix shortfalls quickly. The award’s arrangement simply writes that discipline into enforceable steps.
Why 1 July matters every year
An annualised wage that cleared the minimum comfortably when you set it can fall below it after an annual wage review. Minimum award rates rose 4.75% from the first full pay period on or after 1 July 2026, which moved both the 25% floor and the award entitlements your reconciliation compares against. Our guide to the 1 July payroll changes covers the full set of new-year figures.
Two more moving parts to fold into the annual check:
- Super runs payday by payday. Under Payday Super, the super on an annualised wage is calculated on qualifying earnings each pay and must reach the employee’s fund within 7 business days of payday.
- Reconciliation dates are per employee. Each arrangement’s 12-month clock starts from its own commencement date, so a diary system beats an end-of-financial-year habit.
A practical rhythm: re-test every annualised wage against the new rates each July, run each employee’s formal reconciliation on their arrangement anniversary, and check whether your pay calendar delivers 53 weekly pays in the year, since the standard tax tables under-withhold when it does.
Set it up once, maintain it every year
Annualised wages work well in hospitality when they’re treated as a payroll arrangement with moving parts rather than a number in a contract. The award tells you exactly what those parts are: the 25% floor, the outer limits, the written agreement, the signed records and the annual reconciliation.
If you’d rather have specialists running that machinery, this is exactly what we do. Through our managed payroll services we manage annualised arrangements, outer-limit monitoring and reconciliations for hospitality employers across the country. Call us on 1300 851 133 or send us an enquiry below.
At Alltech, we manage payroll for 150+ businesses across Australia – including the complexities of allowances, Awards, and superannuation compliance. Get in touch to find out how outsourced payroll works and whether it’s right for your business. This article is general information only and doesn’t constitute legal, financial or tax advice.