​Does rise in threshold impact guaranteed earnings?

Q&A

​Does rise in threshold impact guaranteed earnings?

How does the increase in the high income threshold affect a guarantee of earnings? Paul Munro explains.

How does the increase in the high income threshold affect a guarantee of earnings?

This question was recently sent to our Ask an Expert service.

Arrangements in place that guarantee employees earnings in excess of the ‘high income threshold’ should be kept under review because changes to the threshold can have an immediate impact despite the arrangements being expressed to apply for 12 months or more.

Q We have an employee with whom we have a written undertaking to pay a guarantee of annual earnings for 12 months. His annual salary package is currently $143,000 p.a. It is our understanding this avoids the application of the relevant modern award. His salary is greater than the high income threshold of $142,000 p.a. that applied when the guarantee was entered into by the parties (1 October 2017). It has come to our attention that the high income threshold increased to $145,400 p.a. from 1 July 2018. 

Does this mean the provisions of the modern award will apply if we don’t increase his annual salary package to at least $145,400 pa from 1 July 2018? Or is the guarantee of earnings for the guaranteed period of 12 months based on the threshold amount that applied at the time the guarantee was agreed to by the parties, i.e. the guarantee applies from 1 October 2017 to 30 September 2018?

A In this case, the employee’s annual earnings will need to increase to in excess of $145,400 p.a. on and from 1 July 2018 (not first full pay period), otherwise the employee will be subject to the minimum conditions of the relevant modern award.

The Fair Work Act (s329(1)(c)) states that an employee is a ‘high income employee’ if the annual rate of the guarantee of annual earnings exceeds the high income threshold at that time. In this case, the guarantee of annual earnings would not exceed the high income threshold from 1 July 2018.

An employee who earns a guaranteed income in excess of the threshold is not subject to the conditions prescribed by the modern award, subject to a written undertaking by the employer. The effect of the guarantee is to pay the employee more than the ‘high income threshold’ for the agreed guaranteed period.

Under the Fair Work Regulations 2009 (Reg 2.13) the threshold is indexed on 1 July each year, based on movements in the Australian Bureau of Statistics ‘average weekly ordinary time earnings’.

The bottom line: The guarantee of annual earnings must exceed the high income threshold at all times if the employer is to avoid the terms of the applicable modern award.
 

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