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2 April, 2014

 

Legal News & Analysis – Asia Pacific – Australia – Labour & Employment

 

What is included in ‘earnings’ for the unfair dismissal high income threshold?


What You Need To Know

 

  • The Fair Work Act 2009 provides that a person will be protected from unfair dismissal if they are covered by a modern award, an enterprise agreement, or a transitional instrument, or if they earn less than the high income threshold.
  • As at 1 July 2013, the high income threshold is $129,300 per annum. This amount is indexed effective 1 July each year.
  • Determining what payments and benefits are included in an employee’s annual rate of earnings for the purpose of the high income threshold is not always clear.
  • Whether an amount will contribute to an employee’s annual rate of earnings for the purpose of the high income threshold will depend on whether the amount can be determined in advance, how the employee uses the amount and the circumstances of the employee’s employment.
  • This Alert includes a ready reference table that summarises which payments and benefits have been held to fall within “annual rate of earnings” for the purposes of the unfair dismissal high income threshold.

 
What You Need To Do

 

  • Keep track of the unfair dismissal high income threshold, given that it increases around 1 July each year.
  • When weighing up the risks of dismissing an employee, consider whether the employee is eligible to bring an unfair dismissal claim as a result of earning less than the high income threshold or being covered by a modern award, an enterprise agreement, or a transitional instrument.

 

The Fair Work Act 2009 provides that a person will be protected from unfair dismissal if they are covered by a modern award, an enterprise agreement or if they earn less than the high income threshold.

 
As at 1 July 2013, the high income threshold is AUD 129,300 p.a. This amount is indexed effective 1 July each year.

 
Determining what payments and benefits are included in an employee’s annual rate of earnings for the purpose of the high income threshold is not always clear. A recent decision of the Fair Work Commission has provided further guidance on this issue.

 
Are Overtime Payments Included As Earnings For The High Income Threshold?

 
In Foster v CBI Constructors Pty Ltd [2014] FWCFB 1976 a Full Bench of the Fair Work Commission had to determine whether an employee’s annual rate of earnings was greater than the high income threshold for unfair dismissal protection.

 
This turned on whether the employee’s regular overtime was included in his annual rate of earnings. If so, the employee would earn over the threshold and be unable to bring an unfair dismissal claim.

 
The Full Bench determined that because the employee was under an ongoing direction from his employer to attend pre-start meetings before work, it was possible to determine the amount of overtime payments in advance. Consequently, the overtime payments formed part of the employee’s earnings, pushing him over the high income threshold and denying him access to unfair dismissal protection.

 
How To Calculate An Employee’s ‘Earnings’ For The High Income Threshold

 
For the purposes of unfair dismissal protection, an employee’s annual rate of earnings includes:

 

  • wages;
  • amounts applied or dealt with in any way on the employee’s behalf or as the employee directs (for example, voluntary superannuation contributions);
  • the agreed money value of non-monetary benefits; and
  • amounts or benefits prescribed by the regulations. Earnings do not include:
  • payments the amount of which cannot be determined in advance;
  • reimbursements for expenses;
  • statutory superannuation contributions; and
  • other amounts prescribed by the regulations.

 
A key issue is whether the amount concerned can be determined in advance.

 
Whether an amount will be included as part of an employee’s earnings for the purpose of the unfair dismissal high income threshold often turns on the specific circumstances of the person’s employment. Nevertheless, it is possible to summarise the position, subject to factual differences, based on previous decisions of the Fair Work Commission, as set out in the table below:

 

Payments included when calculating an employee’s ‘annual rate of earnings’ for the purpose of the unfair dismissal high income threshold
Included Not included
  • Regular overtime that can be determined in advance
  • Business use of a motor vehicle
  • Fringe benefits including items like fuel, vehicle maintenance and telecommunication services (eg internet for private purposes and entertainment)
  • Living away from home allowance
  • Wages
  • Use of a motor vehicle, provision of food, accommodation and travel in a remote location
  • Amounts applied or dealt with in any way on the employee’s behalf or as the employee directs (eg voluntary superannuation contributions)

 

  • Payment for diploma course and laptop computer
  • Agreed money value of non-monetary benefits context

 

  • Parking fees and tolls when used in a business
  • Amounts or benefits prescribed by the regulations

 

  • Meal allowance
 
  • Variable or incentive based bonuses; nonguaranteed overtime payments; commissions
 
  • Payments the amount of which cannot be determined in advance
 
  • Reimbursements for expenses
 
  • Statutory superannuation contributions
 
  • Amounts prescribed by the regulations

 

Making The Case: Insights from Geoff Giudice

 
If a dismissed employee is not covered by a modern award and no enterprise agreement or transitional instrument applies, the employee’s capacity to make an unfair dismissal application may depend on whether the employee is earning less than the high income threshold at the time of the dismissal.

 
In Foster v CBI Constructors a Full Bench of the Fair Work Commission considered whether overtime payments should be included in earnings for the purpose of the high income threshold. The Bench decided that, in the circumstances, payments for regularly rostered overtime should be included in earnings, even though the overtime was not guaranteed and the arrangement could be altered by the employer.

 

This decision may have implications for any situation in which rostered overtime is worked. Its significance in relation to additional payments of other types is difficult to predict. On the approach in Foster it is possible that other payments could also be included in earnings, even though the employer would not be legally bound to make the payments on an ongoing basis.

 

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For further information, please contact:

 

Marie-Claire Foley, Partner, Ashurst
[email protected]

 

Geoffrey Giudice, Ashurst
[email protected]

 

Daniel Delimihalis, Ashurst
[email protected]

 

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