Increases to High Income Threshold

Effective 1 July 2012, the “high income threshold” for the purposes of the Fair Work Act increases from $118,100 p.a. to $123,300 p.a. 

The high income threshold affects how modern awards apply to employees and access to a remedy for unfair dismissal, it impacts unfair dismissal claim eligibility and annual earning guarantees. This will affect employers in a number of ways:

• for the purposes of unfair dismissal claims, employees not covered by an award, who now earn more than $123,300 p.a. will be excluded from bringing a claim;
• the maximum amount of compensation payable for unfair dismissal is capped at either half the high income threshold, $61,650, or 6 months of the dismissed employee’s wage - whichever is less.
• it increases the level to which an employer can guarantee an employee's earnings that need to be paid to award-covered employees under a written “Guarantee of  Annual Earnings” clause. A guarantee of annual earnings is a written undertaking by an employer to pay the employee more than the high-income threshold for a future period of twelve months or more, which means the employee is not subject to the application of any relevant modern Award. Employers elect this option to avoid compliance with any of the prescriptive provisions of any relevant modern Award (however, the employee will still be able to seek a remedy under the unfair dismissal provisions of the Fair Work Act).

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
• superannuation contributions that the employer has to make.

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 car, phone or computer.

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 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.

The high-income threshold amount is calculated and indexed annually; it will change again in 2013.