In the lead up to the new financial year, many government agencies announce changes to take effect on 1 July. The Fair Work Commission (FWC) is no exception.
Recently, the FWC announced an increase to the minimum wage from 1 July 2018, with proportionate increases to follow through to all modern award minimum rates. The FWC has now also announced an increase to the ‘high income threshold’ from $142,000 to $145,400, effective 1 July 2018.
The high income threshold is calculated based on an employee’s annual rate of earnings, as defined in the Fair Work Act 2009 – which means it includes wages, salary sacrifice and the agreed value of any non-monetary fringe benefits, for example use of a vehicle. It does not include superannuation nor those payments that cannot be determined in advance, such as overtime, discretionary bonuses and commission.
The importance of the high income threshold is that it:
- distinguishes between those employees who can and cannot make an unfair dismissal claim – employees paid above the threshold (if they are not covered by any enterprise agreement or modern award) are barred from making an unfair dismissal claim;
- increases the compensation limit for unfair dismissal matters – compensation is capped at half of the high income threshold (that is, from 1 July, $72,700); and
- sets out the minimum amount of guaranteed earnings to be met for an employee to be a ‘high income employee’ for the purposes of award coverage – modern awards do not apply to high income employees whose terms of employment include a guarantee of annual income, even when they might otherwise be ‘covered’ by a modern award.
As an employer, you should be aware of the impact of the increased high income threshold on your workforce. The change might affect any high income guarantee arrangements currently in place, and also the rights of some employees to make an unfair dismissal claim or access modern award entitlements.
If you would like more information about these changes or about high income guarantee arrangements, please contact a member of our Employment and Safety team.