Not every employee can file a claim for unfair dismissal. If an employee is not covered by a modern award or enterprise agreement, they must have an annual rate of earnings of less than the high income threshold to file a claim. Since the high income threshold is adjusted annually on 1 July, you must be aware of the changes. The high income threshold as of 1 July 2023 is $167,500. For dismissals that took effect on or prior to 30 June 2023, the high income threshold was $162,000. This article covers the essential information about the threshold and what the increase means for your business.
What is the High Income Threshold?
Although the high income threshold and the calculation of earnings may not seem of great concern, it can mean the difference between whether your employee can make an unfair dismissal application or not. This threshold is one of the factors considered in whether an employee will be eligible to make an unfair dismissal application with the Fair Work Commission.
If your employee is successful, this could mean back-payment of wages and/or reinstatement of the role. These could have severe ramifications for your business, including bearing the legal costs of responding to an unfair dismissal claim.
Requirements
Income is not the only requirement you must meet when making an unfair dismissal claim. The requirements are set out in the Fair Work Act 2009 (Cth) and are as follows:
- the employee must have been working with you for the continuous service of 6 months (or 12 months if you are a small business employer);
- the employee needs to earn less than the high income threshold, or an Award or enterprise agreement needs to cover their employment; and
- the employee also needs to make the unfair dismissal claim within 21 days of their dismissal.
Earnings That You Can Include in Assessing Eligibility
One crucial question to consider is how to calculate your employees’ earnings. For example, will bonuses and other benefits be counted in this calculation? Is superannuation included or not included?
To calculate an employee’s earnings, the Fair Work Commission will include your employees’:
- wages or salary;
- voluntary superannuation contributions or any other contributions made on the employee’s behalf as directed by the employee;
- non-monetary benefits (with an agreed monetary value); and
- any other benefits that you can calculate in advance which are assessable.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Earnings You Do Not Include in Assessing Eligibility
However, there are some earnings that the Fair Work Commission will not include in your employee’s wages.
Superannuation
The calculation of earnings does not include superannuation contributions that the company must make, overtime (where it is unexpected), bonuses, or reimbursement for expenses initially paid by the employee.
Vehicles
Another issue you need to consider is any company cars that your employees may use.
Vehicles mainly used for personal reasons will be counted towards earnings for the income threshold. If the vehicle is an essential part of the person’s salary package, it is also more likely to be considered in calculating the employee’s earnings for the purposes of the Fair Work Act 2009 (Cth). For example, driving to and from work can be for personal rather than business purposes.
If you include vehicles in your employees’ earnings, the specific earnings concerning a vehicle you might consider are the following:
- annual distance travelled by the vehicle; and
- percentage of the annual distance travelled, which was for the applicant’s private purposes.
Overtime
Overtime you cannot estimate ahead of time will usually not be considered when calculating earnings. However, overtime that you can estimate will usually be considered, particularly when it is guaranteed or regular overtime.
Bonuses and incentives schemes
High-earning employees often have bonuses and incentive scheme payments that you pay in addition to their base salary. One of the crucial factors here is that employees cannot be guaranteed this additional income, and you do not have to pay these bonuses if you do not want to. Therefore, these bonuses are not included in the high income earning threshold calculation.
Personal items such as computers and mobile phones
Where the use of these items is mainly personal, they may be earnings in that they benefit the employee. However, if they are incidentally for personal use but the primary purpose is business related, this will not likely be considered personal use.
Expenses during employment
Certain employees, often high-income employees, will have a lot of travel expenses and require reimbursement during their employment. Where the employer reimburses these payments, they will not be considered part of the employee’s salary for the purposes of the high income threshold.
Key Takeaways
It is essential to understand that the high income threshold can affect the ability of your employee to claim unfair dismissal. Many factors affect your employees’ income and whether it reaches the high income threshold. Therefore, you need to understand these. For example, you need to be clear about whether any items you provide to your employees are for business or personal use, how non-monetary benefits affect it, and, for example, bonuses and incentive schemes.
If you need help dealing with a claim for unfair dismissal, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
If you fire an employee harshly, unjustly or unreasonably, the employee could file an unfair dismissal claim against you. While there is no clear-cut definition of what constitutes ‘harsh, unjust or unreasonable’, an unfair dismissal can involve dismissal without notice or firing someone without a proper reason.
An employee can file a claim within 21 days of their dismissal if they:
have provided continuous service of 6 months with your business or 12 months with a small business; and
are covered by an award or enterprise agreement or earn less than the high income threshold.
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