The real estate employer and workplace relations advisory association has offered real agents clarification on the changes to commission payments that have been causing “considerable confusion” and, in some cases, resulted in non-compliance.
In April 2018, a raft of changes to the Real Estate Industry Award came into force that impacted more than 80,000 employees, most of whom are employed by small employers with four or fewer staff.
The substantive changes, which were finalised by the Fair Work Commission following a review of the awards.
While many of the changes were relatively simple to understand and incorporate into employment practices, there were two areas that have reportedly generated “considerable confusion for employers and this confusion has resulted in non-compliance”, Bryan Wilcox, the chief executive officer of Real Estate Employers’ Federation (REEF) told Real Estate Business.
“We take over 15,000 calls a year to our telephone help-line and many of these calls relate directly to the Award changes and the general confusion surrounding how the incorporate the changes,” he said.
“The phone enquiry is obviously stronger from State where commission-only is dominant (mainly QLD and WA).
“This and the issue of redundancies is keeping my staff really busy this year. It is definitely tough out there for real estate employers,” he added.
The areas of confusion
The first area of confusion, according to the REEF CEO, stems from a change to an employee’s right to commission once employment has ended.
He explained: “Prior to the new award the rule that applied was that following the termination of an employee’s employment, an entitlement remained for the employee to be credited with commission from a property transaction in accordance with their employment agreement, provided a legally enforceable contract was in place either before the cessation of employment or during the notice period. This was commonly referred to as the ‘line in the sand’ for a commission entitlement.
“Under the new award, this line changed in that the entitlement to be credited with commission after the termination of employment now remains alive for the duration of the fixed term of the exclusive agency agreement,” he explained.
The second main area of confusion has stemmed from the significant changes to commission-only employment under Clause 16 of the Award, he continued, which “underwent a great deal of change as a result of the award review process”.
The key changes to commission-only include new minimum requirements for commission only employment, a new qualification test, a new annual income assessment test, and a removal of the ‘all-up’ commission rate.
New qualification test
Noting the new qualification test for commission-only payments, Mr Wilcox said that, among other qualifying criteria, there is now a new Minimum Income Threshold Amount (MITA) assessment which replaces “the complex and clumsy test that operated for the previous 11 years”.
“In simple terms the MITA assessment is satisfied if the employee can show that in a consecutive 12-month period in the three years immediately prior to entering into the commission-only agreement they received income (including commission payments, but excluding allowances and superannuation) at least equal to 125 per cent of the employee’s classification rate under the new Award, calculated as an annual amount,” the REEF CEO said.
“From 1st July 2019 the MITA for a Level 2 employee is $56,214 and will increase each year as base rates of pay under the Award increase.”
The new award also introduced an obligation for an employer to assess a commission-only employee’s remuneration (i.e. commission received) at the end of each 12-month period.
“If the assessment reveals that the employee received commission (not including allowances or superannuation) less than the MITA over the previous 12 months, the employee can no longer continue to be employed on a commission-only basis,” Mr Wilcox reiterated.
“To continue employment with the agency following a failed MITA assessment, the employee must revert to a salaried position, either with or without an associated commission arrangement.
“Termination of employment may also be an option, provided appropriate performance management processes have been observed.”
Mr Wilcox noted that the annual MITA assessment is an “integral and compulsory” part of the revised commission-only employment system.
He told Real Estate Business: “The Fair Work Commission decided that it was appropriate to change the way the minimum commission-only rate of pay is prescribed in the award.
“It is now 31.5 per cent of the employer’s gross commission (rather than 35 per cent of employer’s net commission).”
He added that “despite REEF’s efforts”, commission-only arrangements that provide for the pre-payment of annual and personal/carer’s leave are “unlawful and inconsistent” with the Fair Work Act.
“Employers who have commission-only employees who are paid an ‘all-up’ commission rate must immediately transition them to an arrangement that is lawful under the Fair Work Act,” he warned.
“A failure to do so would result in employers having to pay NES entitlements (annual leave for example) in addition to the employee’s existing commission percentages without the ability for the employer to recover these payments from future commissions.
“Employers who engage salespeople on a commission-only basis, or intend to do so in the future, really need to understand the new rules as errors could have disastrous financial consequences,” he said.
Mr Wilcox concluded that the federation had previously fought “to insulate our industry against the introduction of penalty rates for weekend work”, to “protect the integrity of our debit/credit commission arrangements” and to fight for real estate employers to continue to have the opportunity to employ high-performing salespeople on a commission-only basis.
“It shouldn’t be forgotten that employees, as well as employers, want this option,” he said.
To be fully across the ever changing employment landscape, employers in the real estate industry should ensure they have access to reliable, accurate and affordable employment information, such as the REEF website.