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.
