Summary

From 31 July 2015, the maximum penalty for each breach of the Fair Work Act 2009 (Cth) (FW Act) has risen from $51,000 to $54,000 for a corporation and $10,200 to $10,800 for an individual.

This increase has wide effect, particularly as there is a growing trend in adverse action claims to name all of the people "involved" in the contravention, in addition to the company. This may include the human resources manager, line manager, general counsel, or a director or officer of the company.

The change is a result of a recent amendment to the Crimes Act 1914 (Cth) (Crimes Act), which has increased the value of a penalty unit from $170 to $180.

A further amendment to the Crimes Act also means that the value of the penalty until will be automatically adjusted in line with inflation every three years. The next amendment is due to take effect on 31 July 2018.

In this eBulletin, we examine the impact of these amendments and provide an update on the key financial rates and thresholds that affect employers and are subject to change on 1 July every year; including the high income threshold, superannuation guarantee, the tax free limit for redundancy payments and the employment termination payment cap.

 

New penalties for breaching the Fair Work Act

Many civil penalties under Federal legislation are calculated using "penalty units". This is particularly the case for contraventions of the FW Act, such as a breach of:

  • the National Employment Standards;
  • a modern award;
  • an enterprise agreement;
  • the general protections provisions;
  • right of entry;
  • bullying orders; and
  • orders relating to unlawful industrial action.

A breach of any of these provisions has a maximum of 300 penalty units for a corporation or 60 penalty units for an individual.

The value of a penalty unit is established by the Crimes Act. In June 2015, Federal Parliament increased the value of a penalty unit under the Crimes Act from $170 to $180.

With the new increase to the penalty unit, the maximum penalty is now $54,000 for a corporation, up from $51,000. For an individual such as a director or a manager, the maximum penalty has increased to $10,800, up from $10,200.

This increase has wide effect, particularly as there is a growing trend in adverse action claims to name all of the people "involved" in the contravention, in addition to the company. This may include the human resources manager, line manager, general counsel, or a director or officer of the company.

If an applicant alleges three managers and the employer were involved in the adverse action, the maximum penalty is now $86,400, being $54,000 for the corporation and three penalties of $10,800 for each manager.

While the FW Act is generally a no-legal cost jurisdiction, the potential exposure of a substantial civil penalty and incurring the legal costs of defending a claim make this change significant for all employers and managers.

The new penalties came into effect on 31 July 2015. This means that any offence that occurs from that time will be subject to the new penalty regime. However, if a penalty relates to conduct occurring before 31 July 2015, the old regime will apply.

A further amendment to the Crimes Act provides for on-going automatic indexation of the penalty unit value based on CPI. Indexation will occur on 1 July every three years, with the next indexation occurring on 1 July 2018.

Increase to the high income threshold for unfair dismissal

In July 2015, the high income threshold for the FW Act increased from $133,000 to $136,700 per annum.

As of 1 July 2015, only an employee earning less than $136,700 per annum who is not covered by a modern award or an enterprise agreement is able to make an unfair dismissal claim against his/her employer, subject to other statutory limitations.

'Earnings' has a special definition under the FW Act. It includes wages and salary, salary sacrifice amounts, agreed value of non-monetary benefits and other payments that can be determined in advance. However, payments that cannot be determined in advance, reimbursements and superannuation contributions made by the employer on behalf of the employee are not included when calculating the high income threshold.

It is important to be aware of this increase when assessing the risk associated with unfair dismissal and 'high earning' employees.

The high income threshold is also important because it sets the maximum amount of compensation payable for an unfair dismissal claim. Where reinstatement is not an appropriate remedy and compensation is awarded, it is capped at the lesser of six months pay or the equivalent of half the high income threshold. The upper limit for awards of compensation in successful unfair dismissal claims has therefore increased to $68,350 as of 1 July 2015 (the limit prior to 1 July 2014 is $66,500).

Superannuation guarantee to remain at 9.5%

The current Federal Government has changed the scheduling of the increases to the superannuation guarantee (SG) that was proposed and legislated by the former Labor government. The SG will now remain at 9.5% for the 2015/2016 financial year and will continue to remain at 9.5% for the next six years before increasing to 10% from 1 July 2021. The SG will then increase incrementally to eventually reach 12% from 1 July 2025.

It is important to make sure that any enterprise agreement or contract that was negotiated with the intent to provide the minimum SG, but which assumed or was based on the previous Labor government’s SG increases, is reviewed. For some employers, depending on the drafting, this may mean that the contractual or enterprise agreement superannuation amount may be higher than the SG rate at 9.5%.

Threshold for tax-free genuine redundancy payments

A genuine redundancy payment made to an employee is tax free up to a certain threshold amount. For the 2015/2016 financial year, the maximum tax-free redundancy payment an employee can receive is $9,780, plus $4,891 for each completed year of service.

This threshold is increased on 1 July every year. If any amount of the genuine redundancy payment an employee receives exceeds the tax-free limit, this portion is treated as an employment termination payment (ETP) and taxed accordingly up to the ETP cap.

Employment Termination Payment cap

For termination payments which arise where the employer brings the employment to an end, the ETP Cap for 2015/16 has been increased to $195,000. Below this amount, employees are taxed on employment termination payments at a concessional amount of 32% or 17% depending on age.

Payments over the ETP Cap are then taxed at the top marginal tax rate.

Group certificates

Employers should remember that their obligation is to provide a PAYG payment summary - employment termination payment within 14 days of making the payment. Many employers misunderstand and think that providing a group certificate at the end of the financial year where the ETP is made satisfies their obligation. Unfortunately, it does not.

You should make sure your payroll staff are up to date with these changes and seek the assistance of an accountant or tax specialist if they are unsure when processing payments.