An increase in the unfair dismissal high income threshold has recently come into effect (1st July 2016) increasing to $138,900. This is an important threshold to be aware of both as an employer and a high incoming earning employee.
This articles covers all the essential information employers need to know about the threshold and what the increase could mean for their business.
What is the High Income Threshold?
Although the high income threshold and the calculation of earnings may not seem like an issue of great concern, it can mean the difference between your employee being able to make an unfair dismissal application or not. This threshold is one of the factors that is considered as to 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 which could have serious ramifications for your business including bearing the legal costs of responding to an unfair dismissal claim.
Income is not the only requirement you need to meet when making an unfair dismissal claim. These requirements are set out in s382 of the Fair Work Act 2009 (Cth).
- Firstly, the employee must have been working with the employer for the continuous service of 6 months (or 12 months with a small business).
- After this requirement is met to apply for unfair dismissal, the employee needs earn less than the high income threshold, or an Award or enterprise agreement needs to cover their employment.
- The employee also needs to make the unfair dismissal claim within 21 days of their dismissal.
One question that is important to consider is how the earnings will be calculated, for example, will bonuses, and other benefits be counted in this calculation? Is superannuation included or not included in this calculation? These factors may change the salary you pay your employees and benefits you may request as an employee if you are close to the threshold.
Earnings that can be included in Assessing Eligibility
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 can be calculated in advance are assessable.
These benefits are set out in detail in s 332 of the Fair Work Act 2009 (Cth). The Fair Work Commission will also consider non-monetary benefits and whether they should be included.
Earnings that are not included in assessing eligibility
The calculation of earnings does not include superannuation contributions that the company must make, overtime (where it is unexpected), bonuses, or reimbursement for expenses originally paid by the employee.
Another issue you need to consider is any company cars that your employees may use.
Vehicles mainly being used for personal reasons will be counted towards earnings for the purpose of the income threshold. If the vehicle is an important 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 is a personal rather than a business purpose (Zappia v Universal Music Australia Pty Ltd T/A Universal Music Australia  FWA 3208.
The calculation of working out the specific earnings in relation to a vehicle is set out in Kunbarllanjnja Community Government Council v Fewings (unreported, AIRCFB, Ross VP, Watson SDP, Bacon C, 7 May 1998):
- Annual distance travelled by the vehicle in question.
- Percentage of the annual distance travelled which was for the applicant’s private purposes.
- Multiply the numbers from 1. and 2. This provides the annual distance travelled for private purposes.
- Estimate the cost per kilometre for the vehicle.
- Multiply the annual distance travelled for private purposes by the estimated cost per kilometre.
Overtime that cannot be estimated ahead of time will usually not be taken into consideration when calculating earnings. However, overtime that can be estimated will usually be taken into consideration particularly where it is guaranteed or regular overtime.
Bonuses and incentives schemes
High earning employees often have bonuses and incentive scheme payments that they are paid in addition to their base salary. One of the important factors here is that employees cannot be guaranteed this additional income and the employer has the option not to pay these bonuses if they 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 largely personal then they may be considered to be earnings in that they are a benefit to the employee. However, if they are incidentally being used for personal use but the main purpose is business related then this will not likely be considered personal use.
Expenses during employment
Certain employees and often high income earning employees will have a lot of travel expenses, and reimbursement will be required during their employment. Where these payments are reimbursed by the employer they will not be considered part of the employee’s salary for the purposes of the high income threshold.
It is important to consider at the early stages how your salary package for your employees will be structured and be clear around whether any items you provide to your employees are being used for business or personal use only. For legal advice from a specialist employment lawyer at LegalVision, call our Client Care team on 1300 544 755.