HIGH INCOME THRESHOLD
From 1 July 2018, the “high income threshold” for the purposes of the Fair Work Act 2009 (Cth) increased from $142,000 p.a. to $145,400 p.a. This increase affects employers in a number of ways:
- for the purposes of unfair dismissal claims, employees who are not covered by either a Modern Award or Enterprise Agreement and who now earn more than $145,400 p.a. will be excluded from bringing a claim;
- it increases the maximum compensation for unfair dismissal to half of that threshold, i.e. $72,700 (or six months remuneration, whichever is less); and
- it increases the “guaranteed earnings” that need to be paid to Modern Award-covered employees under a written “Guarantee of Annual Earnings” clause to ensure the Modern Award no longer applies to the employee.
Whether an employee reaches the high income threshold is determined by a calculation of their annual “earnings”. In this respect, employers should note that the Fair Work Act 2009 (Cth) contains a special definition of “earnings”.
“Earnings” do not include:
- payments that cannot be determined in advance – such as commissions, incentive-based payments, bonuses, and overtime (unless the amount is guaranteed);
- reimbursements; and
- ordinary contributions to superannuation (i.e. compulsory superannuation payments).
- “Earnings” do include:
- wages;
- amounts paid on the employee’s behalf or as the employee directs – this will cover additional, voluntary superannuation contributions paid at the direction of the employee; and
- the agreed value of non-monetary benefits such as a car, phone or laptop.
Employers need to take care in assessing earnings – for example, providing an employee with a company car will not take an employee over the high income threshold unless there is a prior agreed value assigned to the use of the vehicle.
Employers with senior employees under Guarantees of Earnings should check their contracts and the written Guarantee to ensure they continue to comply.