The “high-income threshold” referred to in the Fair Work Act 2009 (Cth) and regulation 2.13 of the Fair Work Regulations 2009 (Cth) is set for an annual increase which will take effect on 1 July 2022.
The high-income threshold is currently set at $158,500 and it is reported that it will increase to $162,000 on 1 July.
The “high-income threshold” serves a number of purposes in employment law, as set out below. One that is not often commented on is its impact on an employee’s entitlement to long service leave payments which take account of average bonuses and commissions earned.
Eligibility to claim unfair dismissal
There are a number of criteria that an employee must satisfy to be eligible to claim unfair dismissal if dismissed, one of which is that their annual earnings must be less than the high-income threshold. An exception to this rule is if a modern award or enterprise agreement covers their employment, in which case their level of earnings is irrelevant for eligibility for unfair dismissal purposes.
In other words, even high earners are eligible to unfair dismissal if they are covered by an award or enterprise agreement.
Maximum compensation for unfair dismissal
The high income threshold is also important for setting the maximum compensation that an employee can be awarded for an unfair dismissal claim, as this is set at exactly half the amount of the high-income threshold (ie $81,000 from 1 July 2022). The exception is if the employee’s earnings over 6 months is less than this figure, in which case a maximum payment equivalent to 6-months-earnings will apply instead.
Guarantee of annual earnings
The high-income threshold is also important for the purposes of entering into a “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) so long as the employee is paid yearly remuneration of more than the high-income threshold.
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. Providing a guarantee of annual earnings cannot affect this.
Eligibility for bonus / commission payments for long service leave
A less well-known purpose of the high-income threshold is to regulate which employees in NSW are entitled to long service leave payments which include average payments for bonuses and commissions received during employment.
The Long Service Leave Act 1955 (NSW) provides that long service leave payments are to include bonuses and commissions calculated as follows (section 3(1)(c)):
(c) the average weekly amount of bonuses received by the worker as a worker employed by the person who is the worker’s employer on the prescribed date during–
(i) where paragraph (a) (i) or (b) (i) applies for the purpose of calculating the worker’s ordinary pay, the period of 12 months, or
(ii) where paragraph (a) (ii) or (b) (ii) applies for that purpose, the period of 5 years,
However, there is an exception to this rule at section 3(2C):
(2C) Despite anything to the contrary in this section, the ordinary pay of a worker is not to include or be increased by the amounts paid under any bonus, incentive or other similar scheme if the annual amount of the worker’s ordinary pay (excluding any amounts so paid) exceeds the amount prescribed by the regulations for the purposes of this subsection.
The Long Service Regulation 2021 (NSW) then goes on to prescribe at regulation 4(b) that average bonuses earned are not to be part of the payment for long service leave where the employee’s earnings exceeds the amount prescribed by regulation 2.13 of the Fair Work Regulations (ie the amount of the high income threshold!).
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If you need further help regarding any of the matters referred to in this article, please contact EI Legal.
The information provided in these blog articles is general in nature and is not intended to substitute for professional/legal advice. If you are unsure about how this information applies to your specific situation we recommend you contact EI Legal for advice.