Employment Law Termination NSW

Updated – July, 2017

The high income threshold for unfair dismissals refers to the highest possible income an employee can have, unless they are covered by an award or enterprise agreement, before they are excluded from making an unfair dismissal claim against their organisation. From 1 July 2017 the unfair dismissal high income threshold has been set at $142,000 (not including superannuation). An employee with annual earnings exceeding this amount is excluded from making a claim against their organisation under the Fair Work Act 2009 (Cth).

The following shows how much the threshold has increased every year:

  • 2009-2010 – $108,300
  • 2010-2011 – $113,800
  • 2011-2012 – $118,100
  • 2012-2013 – $123,300
  • 2013-2014 – $129,300
  • 2014-2015 – $133,000
  • 2015-2016 – $136,700
  • 2016-2017 – $138,900

From 1 July 2017 to June 30th 2018 – $142,000

If an unfair dismissal claimant is not covered by an award or enterprise agreement, and was earning greater than the high income threshold at the time of dismissal, then the employer may have a defence. However, any such defence must still be heard and argued before a representative of Fair Work Commission (FWC). In any case, it is recommended organisations immediately seek legal advice once being served with a Unfair Dismissal Claim so the lawyer can assess if any defences are available.

Related Article > Unfair Dismissal Maximum Compensation Explained

How is the annual rate of earnings determined?

The threshold applies to an employee’s annual rate of earnings, as defined in the Fair Work Act 2009.

It includes the employee’s wages, any amounts applied or dealt with on the employee’s behalf (e.g. salary sacrifice) and the agreed value of any non-monetary fringe benefits (including a car, fringe benefits tax, etc).

It does not include reimbursements such as allowances for meals or living away from home. It also does not include statutory superannuation contributions.

In most cases, it is very easy for all parties involved to determine the employee’s annual rate of earnings, and thus determine whether or not it exceeds the high income threshold. However, if the employee’s situation requires bonuses, overtime and salary sacrifices to be factored into the calculation, things can become complicated.

This issue was somewhat resolved in the case of Lesley Mallows v Touch Base Asia Pacific Pty Ltd t/a Touch Base Asia Pacific [2011] FWA 1695 (18/03/2011). In this particular case, FWC had to consider whether overtime and performance-based bonuses, that increased an employee’s base salary to the degree that it exceeded the threshold, excluded the employee from making an unfair dismissal claim against their organisation.

FWC determined that overtime and performance-based bonuses could not be included as part of the overall calculation of income because they could not be determined in advance. In this particular case, the bonuses (commission) were based on whether the employee reached their targets. Therefore, it was impossible to determine whether the employee would actually reach them, which means it did not suit the ‘determinative income’ that is required under section 332(2)(a) of the Fair Work Act 2009 (Cth).

Overall, in any unfair dismissal claim, the first thing to consider is whether the employee’s claim is outside the unfair dismissal jurisdiction, and therefore barred. This could be due to the high income threshold, the employee not having serve the “minimum employment period” (6 or 12 months depending on employers size), the employee’s contract being for a fixed term or fixed task etc.

If you have any doubt as to whether an ex-employee’s claim is within jurisdiction, don’t hesitate to call or email us.

Can high income earners claim unfair dismissal?

The high income threshold level increases every year, which enables more employees to access the unfair dismissal provisions.

Employers should be mindful that employees who earn over the threshold and are unable to lodge an unfair dismissal claim may still have other legal avenues to challenge their dismissal. These avenues include a ‘Breach of Contract‘ claim, anti-discrimination laws and the general protections provisions of the Fair Work Act.

Therefore, before dismissing a high income employee, we suggest seeking legal advice to ensure you are protected against any type of challenge.

Would this employee be under or over the high income threshold?

Employee 1:

  • has been employed for over 6 months
  • is under no award or agreement
  • is on an annual salary of $141,000 + superannuation
  • has a commission arrangement valued at $40,000 (not guaranteed)

This employee would be under the threshold because the commission arrangement and superannuation are not considered to be part of the employee’s annual rate of earnings. This is because the commission is not guaranteed. If the commission was guaranteed by the employer, the employee would be over the threshold.

Employee 2:

  • has been employed for over 6 months
  • is under no award or agreement
  • is on an annual salary of $98,000 + superannuation
  • has a work vehicle with an agreed upon value of $45,000

This employee would be over the threshold because the work vehicle is considered to be part of the employee’s annual rate of earnings. This employee has an annual rate of earnings of $143,000, which is $1000 over the threshold of $142,000 (July 1st, 2017).

Note: With the threshold limit there is no ‘room to move’. This means that even if an employee earns as little as $1000 over the threshold, they will still be unable to access the unfair dismissal provisions.

Would a salary sacrifice to superannuation be included in the calculation of income?

Yes, it is included. If your original gross salary is over the threshold, you cannot salary sacrifice to superannuation and get under the threshold by doing so.

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