Fact v Fiction: The High Income Threshold
The High Income Threshold is an amount prescribed and indexed annually in accordance with the Fair Work Act and Regulations. We take a closer look at a variety of the ways in which the High Income Threshold applies to discern the facts from the folklore.
The High Income Threshold is defined in s 333 of the Fair Work Act and calculated/indexed in accordance with r 2.13 of the Fair Work Regulation. The current and historic values of High Income Thresholds are published by the Fair Work Ombudsman. Section 15C of the Fair Work Act and r 1.08AA of the Fair Work Regulation prescribe and index a separate Contractor High Income Threshold which is currently the same as the High Income Threshold.
When is the High Income Threshold Used?
The High Income Threshold (HIT) is used in a variety of ways throughout the Fair Work Act, with key examples including:
The HIT is one of the elements which define a high income employee in s 329 of the Fair Work Act.
The HIT limits the jurisdiction of unfair contract term remedies in s 536ND of the Fair Work Act according to a contractor’s annual rate of earnings.
The HIT limits the jurisdiction of unfair deactivation and unfair termination remedies in s 536LU of the Fair Work Act according to the annual rate of earnings of an employee-like worker or regulated worker and is also used to set the maximum compensation payable, where such an order is available.
The HIT limits the jurisdiction of unfair dismissal remedies in s 382 of the Fair Work Act and is also used within the formula which sets the maximum compensation that can be awarded for unfair dismissals.
The HIT limits the restrictions which apply to the duration of fixed term contracts where a full-time contract provides for earnings which exceed the HIT.
Section 333F (2) of the Fair Work Act and r 2.14 of the Fair Work Regulation 2009 applies a pro-rated HIT for the purpose of limiting the two-year restriction on fixed term contracts in the case of part-time employees.
A modern award no longer applies to an employee if they have been provided with an undertaking in advance that meets the statutory requirements of a Guarantee of Annual Earnings under s 330 of the Fair Work Act 2009 and the annual earnings for the specific 12-month period exceed the HIT.
WHen does a Modern Award Cease to APply to an EMployee Based on Income?
In Association of Professional Engineers, Scientists and Managers Australia v Peabody Energy Australia Coal Pty Ltd [2022] FCA 945, it was held that the payment of an annualised salary does not guarantee earnings for a period of 12 months. A mere annualised salary does not enliven s 47 (2) of the Fair Work Act, which provides that a modern award ceases to apply when a guarantee of annual earnings exceeding the HIT has been provided in the form of an undertaking.
In other words, a modern award does not cease applying to an employee simply because they are paid an annual salary valued in the amount of the HIT or higher. There must be an undertaking (either within the contract or as a separate document) which guarantees that earnings will exceed the HIT for the relevant 12-month period. Earnings include:
Section 330 of the Fair Work Act defines Earnings to include:
(a) the employee's wages;
(b) amounts applied or dealt with in any way on the employee's behalf or as the employee directs;
(c) the agreed money value of non-monetary benefits; and
(d) amounts or benefits prescribed by the regulations.
However, Earnings do not include:
(a) payments the amount of which cannot be determined in advance;
(b) reimbursements;
(c) certain contributions to a superannuation fund; and
(d) amounts prescribed by the regulations.
For example, an otherwise compliant undertaking will be insufficient if it provides for a base salary below the HIT but leads to commission which results in a total well above the HIT. Total remuneration packages must ensure that the non-super component is used to ensure an undertaking guarantees earnings are at least valued at the HIT.
Protection from Unfair DIsmissal
Section 382 of the Fair Work Act 2009 extends protection from unfair dismissal to an employee who who has completed the required minimum employment period and where one or more of the following apply:
a modern award covers the person;
an enterprise agreement applies to the person in relation to the employment;
the sum of the person's annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the HIT.
Importantly, an employee is protected if a modern award covers their employment, rather than if a modern award applies to their employment. A compliant undertaking providing a guarantee of annual earnings above the HIT only stops a modern award from applying to the employee.
