22 May Newsletter: High Income Threshold

High Income Threshold

The high income threshold is currently set at $133,000.00 per annum and is set to increase on 1 July 2015, and the Fair Work Act 2009 (Cth) outlines what earnings can contribute to “earnings” for the purpose of calculating the high income threshold.

The Fair Work Commission has recently rejected two unfair dismissal applications because the employees in both cases earned more than the threshold, when considering allowances and benefits above their base salary

These cases demonstrate that even if an employee’s base salary is below the high income threshold, additional benefits may be classified as “earnings” in some circumstances, pushing their earnings over the threshold and making them ineligible for unfair dismissal remedies (provided they are not covered by an Enterprise Agreement or Modern Award).

Employers should consider reviewing their Award covered high income earning employees and utilise the Fair Work legislation in light of the Fair Work Commission’s recent findings.

Priddis v Komatsu Australia Pty Ltd [2015] FWC 2406

In Priddis v Komatsu Australia Pty Ltd, the employee’s remuneration package included the following entitlements:

• $120,000.00 base salary;
• $30,000.00 zone allowance (paid because of the location of his position); and
• other benefits.

The zone allowance was included when calculating payments for annual leave, personal leave, notice of termination and calculating superannuation.  The employee argued that it shouldn’t be considered “earnings” because it wasn’t expressed to be part of his base salary and was location specific.  However, Deputy President Gooley rejected this suggestion, noting that the allowance was payable so long as the employee was at the location, distinguishing it from a living away from home allowance or a discretionary bonus.  Her Honour referred to Ferguson v Macmahon Contractors Pty Ltd [2015] FWC 1294 and Suleski v Rio Tinto Iron Ore Dampier [2015] FWC 1663 where site allowances were included in earnings.  These allowances had similar characteristics to this case’s zone allowance and therefore it was found that this allowance should be included as “earnings” for calculating the high income threshold.  As such, the unfair dismissal application was dismissed.

Wilkinson v BIS Industries Limited t/a BIS Industries [2015] FWC 2385

In Wilkinson v BIS Industries Limited t/BIS Industries, the employee’s remuneration included:

• $118,500.00 base salary;
• $15,000.00 site allowance;
• 10% super; and
• other payments not relevant to the proceeding.

The allowance was paid on annual and personal leave and was included when calculating superannuation and pay in lieu of notice, but was not included for calculating annual leave on termination, long service leave or redundancy pay.

The fact that the employee may not have received the allowance if he had not been at a fly-in-fly-out site was not determinative.  Deputy President Gooley again distinguished the payment from a living away from home allowance or discretionary bonus.  Referring to the same case law as in Priddis, she found that this allowance too was part of the employee’s earnings and therefore his unfair dismissal application was also dismissed.

What should you do if you have a high income earner who is covered by an Award?

If an employee is covered by a Modern Award and their earnings are above the high income threshold or if they are boarder line but are entitled to other benefits as described in the case law above, a guarantee of annual earnings (“GAE”) can be an effective way of moving an employee out of award coverage.

The Fair Work Act 2009 (Cth) provides that for a guarantee of annual earnings to be valid it must:

• Be for an employee covered by a Modern Award, who does not have an Enterprise Agreement applying to them;
• Be an undertaking in writing;
• State the amount of earnings for the guarantee period;
• Cover performance of work for at least 12 months (unless the employee will be performing the work for less than 12 months, then for that shorter period);
• Be agreed to by the employee (including agreement on the amount of earnings); and
• Be given to the employee and agreed to by the employee before the start of the period and within 14 days after they are employed or after the day on which they agree to the variation of employment.

Before, or when the guarantee is given to the employee, a written notification must be given to the employee from the employer notifying them that a Modern Award will not apply to them whilst the guarantee exceeds the high income threshold.

However, a guarantee of annual earning used in this way is only effective if the earnings in the guarantee exceed the high income threshold.  With the high income threshold set to rise on 1 July 2015, any guarantee of annual earnings you may have in place should be checked once the new high income threshold is announced, to ensure that they continue to be effective.

Make sure you get it right!  Contact us for more information on introducing guarantees of annual earnings into your workplace.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.