High income threshold: What are the increases?
As of 1 July 2014, the high income threshold will be increased to $133,000 per annum. Currently, the high income threshold is $129,300 per annum.
Why is this significant?
The high income threshold is important because it:
- determines the eligibility of employees who are not covered by a modern award or enterprise agreement to make an unfair dismissal claim;
- sets the maximum amount of compensation payable for an unfair dismissal claim; and
- specifies the minimum rate that an employer must 'guarantee' to effect a high income guarantee.
Claiming unfair dismissal
Under the Fair Work Act 2009 (Cth) an employee cannot bring a claim for unfair dismissal where:
- they are not covered by a modern award or enterprise agreement; and
- their annual earnings exceed the high income threshold.
What is counted under the high income threshold?
In determining whether an employee is earning above the threshold, it is important to understand how to calculate an employee's "earnings". An employee's "earnings" include:
- money paid on the employee's behalf or as the employee directs (eg superannuation top ups or salary sacrifice); and
- non-monetary benefits such as laptops (at the agreed value of the benefit).
However, "earnings" do not include:
- payments, the amount of which is not capable of being determined in advance (eg commissions, bonuses or overtime);
- reimbursements; and
- mandatory statutory employer superannuation contributions.
How does the high income threshold increase affect me as an employer?
From 1 July 2014, an employee who earns less than $133,000 and who is not covered by a modern award or an enterprise agreement may be able to make a statutory unfair dismissal claim against his/her employer, subject to other statutory limitations.
Prior to 1 July 2014, only employees in those categories who earned less than $129,300 were able to make such claims.
It is important to be aware of this increase when assessing the risk associated with dismissing 'high earning' employees.
Compensation may be awarded where reinstatement is not an appropriate remedy. The upper limit for awards of compensation in successful unfair dismissal claims will increase to $66,500 as of 1 July 2014 (the limit prior to 1 July 2014 is $64,650).
High income guarantees and modern award application
Employers can prevent the application of modern awards to an employee who earns over the high income threshold by entering into a written high income guarantee with the employee. From 1 July 2014, a high income guarantee must guarantee that an employee earns more than $133,000 per year.
If you have award-covered employees who currently earn between $129,300 and $133,000, and are subject to a high income guarantee after 1 July 2014 the exclusion from award application may no longer be effective. The application of an award affects various matters such as hours of work, overtime, penalty rates, superannuation, leave entitlements and allowances.
Minimum wage increases
From 1 July 2014, the national minimum wage will be increased to $640.90 per week or $16.87 per hour. This is an increase of $18.70 per week or 50 cents per hour.
Modern award minimum wages will also be increased by 3%.
How do the minimum wage increases affect me as an employer?
The increases will affect employers employing employees who are paid at the national minimum wage rate, or at a rate under a modern award.
The national minimum wage increase comes into effect from 1 July 2014. Payments to employees who are not covered by awards may be affected by the increase.
The Fair Work Commission will soon release draft determinations to give effect to the 3% increase in modern award minimum wages.