From 1 July 2021, the high income threshold increases to $158,500. Why does this matter?
The High Income Threshold is an important figure to keep in mind if faced with an unfair dismissal claim and also when entering into a high income guarantee arrangement with an employee.
The high income threshold affects 3 main entitlements:
- Employees who earn more than the high income threshold and who aren’t covered by a modern award or enterprise agreement, can’t make an unfair dismissal claim, though may still have other legal avenues to challenge their dismissal.
- Employees who are covered by a modern award and have agreed to a written guarantee of annual earnings that is more than the high income threshold, don’t receive modern award entitlements.
- The maximum amount of compensation payable for unfair dismissal is capped at either half the high income threshold, or 6 months of the dismissed employee’s wage - whichever is less.
What is counted under the high income threshold?
An employee is affected by this if their ‘earnings’ are more than the high income threshold. ‘Earnings’ include:
- Wages;
- Money that is paid on their behalf (e.g. superannuation top-ups or salary sacrifice);
- The agreed value of non-monetary benefits (e.g. laptops and mobile phones).
An employee’s earnings don’t include:
- Payments that can’t be set in advance (e.g. commissions, bonuses or overtime);
- Reimbursements;
- Superannuation contributions that the employer has to make.
Employers need to take care in assessing earnings – for example, providing an employee with a company car will not take an employee over the high income threshold unless there is a prior agreed value assigned to the use of the vehicle.
Given the increase to the threshold, employers with employees under Guarantee of Earnings contracts should check their contracts and the written Guarantee to ensure they continue to comply.
It is also important to 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.
The superannuation maximum contribution base also increased on 1 July 2021 to $58,920 per quarter. This amount sets the cap on which superannuation contributions must be made. If an employee earns above this limit in a particular quarter, employers are not required to make SG contributions for the part of earnings over this limit.
If you need assistance understanding whether your employees have access to unfair dismissal or understanding the application of Guarantee of Earnings or the maximum contribution base, please contact us.