High-Income Threshold to Increase
The Fair Work Commission has recently announced the upcoming increase to the “high income threshold”. As of 1 July 2021, the threshold will be increased from $153,600 to $158,500.
This increase will impact the maximum earnings an employee may earn to bring an unfair dismissal claim, the maximum damages available to employees in unfair dismissal claims and the minimum amount an employee must earn before they can be given a “guarantee of annual earnings” (to avoid award obligations).
Unfair dismissal claims and the high-income threshold
Employees who are not covered by a modern award or enterprise agreement and who earn an amount equivalent to the high income threshold or above per year, are not protected from unfair dismissal under the Fair Work Act. This means that these employees are unable to bring an unfair dismissal claim against their employer when their employment is terminated.
For employees covered by a modern award or an enterprise agreement, the high income threshold is irrelevant and they will be able to bring an unfair dismissal claim, regardless of their level of earnings. In some instances, depending on the industry of the business, even senior employees can be award-covered and therefore able to make an unfair dismissal claim.
As such, employers should not assume that just because an employee earns above the high income threshold, or is a senior employee in the business, that they would automatically be precluded from unfair dismissal access.
Further, employers should also be aware that, despite not being protected by the unfair dismissal regime, employees may have access to a number of other protections such as access to general protections and discrimination claims. We would therefore always suggest seeking professional advice before terminating the employment of any employee.
Increase to unfair dismissal damages
The maximum damages in an unfair dismissal claim are set at half the rate of the high income threshold. In line with the increase to the high income threshold, the maximum damages for employees making an unfair dismissal claim will also increase from $76,800 to $79,250 from 1 July 2021.
The Fair Work Commission has also increased the filing fee for general protections, unfair dismissal, and anti-bullying applications from $74.50 to $74.90.
Guarantee of annual earnings
For employees that are covered by a modern award and earn over the high income threshold, an employer may provide a written undertaking (a “guarantee of annual earnings”) which operates so that the provisions under the applicable award will not apply (such as overtime or other penalty rates).
However, even if the employer provides a guarantee of annual earnings to an employee, the employee will still be able to make an unfair dismissal claim on termination of employment, there is no way to avoid this for an award covered employee.
If you require a guarantee of annual earnings to be included in contracts for high earning staff, please contact us for a template clause.
What earnings are included the high-income threshold?
In calculating whether an employee earns over the high income threshold, there are a number of financial benefits that may be included, and this does not necessarily just include an employee’s wages.
Generally most financial benefits which have a fixed value can be included (such as salary sacrifice arrangements), as well as the monetary value of non-monetary benefits (such as a company car).
However, reimbursements of expenses and superannuation guarantee contributions are excluded. As are any payments the amount of which cannot be pre-determined (eg bonuses, commissions, incentive-based payments or non-guaranteed overtime hours).
About Employment Innovations
Employment Innovations is one of Australia’s leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium sized employer needs – including workplace advice, legal services, payroll solutions, migration, human resource management and HR software.
The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.