Unfair dismissal threshold – is bonus included?

Q&A

Unfair dismissal threshold – is bonus included?

A reader asks whether payment of commissions or bonuses count toward salary for the purposes of the high income threshold in unfair dismissal cases.

WantToReadMore

Get unlimited access to all of our content.

This question was recently sent to our Ask an Expert service.
 
Q Our company recently terminated a worker's employment due to poor performance. The employee was employed for more than 20 years and his dismissal occurred after many counselling and disciplinary meetings and written warnings. The employee worked in a sales capacity dealing mainly with our major clients. His annual base salary was about $140,000, but this usually increased by an additional $20-30K based on commission on sales.
 
He has now made an application to the Fair Work Commission claiming unfair dismissal. It is our understanding that an employee who earns in excess of the high income threshold does not have access to an unfair dismissal remedy.
 
Is a commission or a bonus included in the employee’s annual rate of earnings for the purpose of the high income threshold?
 
A The Fair Work Act (s382) provides that a person is protected from unfair dismissal if the: 
  • minimum period of employment has been completed
  • employee is covered either under a modern award or an enterprise agreement
  • sum of their annual earnings is less than the high income threshold ($145,400 per annum from 1 July 2018).

In this case, the employee may argue there is coverage under the Commercial Sales Award 2010 unless his duties involved management responsibilities.
 
If the employee is award/agreement-free, the high income threshold becomes the important factor in determining whether the employee can seek a remedy under unfair dismissal law. 
 

High income threshold – unfair dismissal


The high income threshold is based on an employee’s annual rate of ‘earnings’. The Fair Work Act (s332) defines the meaning of earnings to include: 
 
  • the employee’s wages
  • any amounts applied or dealt with in any way on the employee’s behalf or as the employee directs (salary sacrifice arrangement); and
  • the agreed money value of non-monetary benefits.
An employee’s earnings do NOT include: 
 
payments the amount of which cannot be determined in advance. Examples include commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed) – see Jenny Craig Weight Loss Centres Pty Ltd v Margolina [2011] FWAFB 9137
reimbursements. Examples include meal allowance, motor vehicle allowance, travel allowance, etc.
employer contributions to a superannuation fund.
 

Non-monetary benefits

 
It is unclear whether non-monetary benefits, such as a company-provided motor vehicle, may also have applied under the person’s contract of employment. This, however, would not include a motor vehicle that is considered a ‘tool of trade’. An employee’s annual rate of earnings for the purposes of the high income threshold includes ‘non-monetary benefits’.
 
Other benefits that may also come under this description include private use of a company mobile phone and private use of a company laptop.
 
Where the parties cannot agree on the value of a non-monetary benefit, the Fair Work Commission has the power to determine the value of a particular non-monetary benefit.
 
The tribunal has determined an appropriate method of calculating the value of the motor vehicle component of an employee’s remuneration package. The main criteria used by motoring organisations in deriving costs estimates are depreciation, opportunity cost, vehicle registration and insurance, fuel, vehicle maintenance and Fringe Benefits Tax. 
 

Possible outcomes


The are several possibilities as to whether an employee on the verge of the high income threshold can apply for an unfair dismissal remedy and these depend on the specific circumstances. 
  • award-covered: a person may claim unfair dismissal, regardless of annual rate of earnings
  • award/agreement-free: a person may claim unfair dismissal if base salary is $140,000 pa, (as commission or bonus is not counted as earnings for the purpose of the threshold), or
  • award/agreement free: a person cannot claim unfair dismissal if base salary plus agreed value of non-monetary benefits (company-provided motor vehicle) exceeds high income threshold of $145,400 pa.
As always, employers should consider whether legal advice from a lawyer is an appropriate course of action. 

The bottom line: Bonus or commission is not included in an employee’s annual rate of earnings for the purpose of the high income threshold but employers should also check the possibility that a worker may be covered by a modern award.
 

Need more help with people management?

Australian Business Consulting and Solutions has a dedicated team of HR experts who can assist you with your specific people management issues and problems. If you would like a free and obligation-free initial assessment of what you require in terms of professional assistance, you can obtain more information from our website.


 
 
Post details