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What is meant by ‘high income threshold’ and ‘compensation cap’ for unfair dismissal applications, and what are the new amounts for this financial year?

High Income Threshold
An employee whose annual rate of earnings is above the ‘high income threshold’ – and who is otherwise not covered by an award or enterprise agreement – is not eligible to apply for an unfair dismissal remedy. As of 1 July 2017, the high income threshold increased to $142,000.

It is not always clear which payments and benefits are included in an employee’s annual rate of earnings for the purposes of unfair dismissal protection. Do not assume that an employee is exempt just because his or her total remuneration package is above the high income threshold amount.

What is included in the annual rate of earnings?
Some of the payments that make up an employee’s total remuneration package may not be included in the employee’s earnings for the purpose of the high income threshold. Section 332 of the Fair Work Act 2009 (Cth) provides for the kind of payments that are (and are not) included under ‘earnings’. It excludes any super guarantee contributions, non-monetary benefits and any payments the amount of which cannot be determined in advance (such as incentive based payments or expense reimbursements).

The value of a car, travel or vehicle allowance may be included if it (or part of it) is intended for personal use.¹ We recommend that the value of any personal use be quantified and agreed in writing, so as to establish the amount objectively. As with any kind of payment, whether it is included in the employee’s ‘earnings’ will often turn on the specific facts and circumstances.

Tip! A high earning employee may still be protected from unfair dismissal. It could be the case that particular payments that make up his or her remuneration package do not count for the purposes of meeting the high income threshold. If you have a high-income employee, seek specialist advice on how to pro-actively manage the risk to your business of an unfair dismissal.

Trap! Even where an employee’s earnings are above the high income threshold, he or she may still be eligible to make an unfair dismissal application if a modern award or enterprise agreement applies to that employee.

Compensation Cap
In the event of a successful unfair dismissal application, reinstatement is the primary remedy. If reinstatement is not appropriate, or if the Fair Work Commission considers that compensation is appropriate in all the circumstances of the case, it may make an order of compensation. That order cannot be higher than the 26 weeks’ pay,² or the compensation cap (whichever is lower).

As of 1 July 2017, the compensation cap increased to $71,000.

Require further information/assistance?
If you require further information or advice, please contact your local Consultant at either our Adelaide or Melbourne offices.

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¹ See Harris v SX Projects Pty Ltd [2014] FWC 3047 (9 May 2014).
² See Fair Work Act 2009 (Cth) s 392: 26 weeks’ pay means the total amount received by the person or to which the person was entitled (whichever is higher) for the period of employment during the 26 weeks immediately before the dismissal.

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