The high-income threshold is currently $145,400.
The Fair Work Act (the Act) provides that a person is only protected from unfair dismissal if the sum of the person’s annual rate of earnings, and other amounts worked out in accordance with the Fair Work Regulations 2009, is less than the high-income threshold.
While some payments to an employee are plainly excluded from the annual rate of earnings (i.e. compulsory superannuation contributions, reimbursements and variable payments which cannot be determined in advance), other payments including fixed allowances and non-monetary benefits can in some cases be included.
In a number of recent decisions of the Fair Work Commission (the Commission), the Commission has considered what sorts of benefits can be attributed to the employee’s annual rate of earnings for the purposes of the high-income threshold.
Sam Technology Engineers Pty Ltd v Bernadou
In a more straightforward case, the Commission determined that where an employee:
- is provided with a fully maintained vehicle for use in the course of their employment; and
- also uses that vehicle for private purposes,
the value of that private use of the vehicle should be included in the employee’s annual rate of earnings.
Where there has been no agreement as to the value of the private use of a vehicle, the value of the private use is calculated by excluding the vehicle’s use for business purposes and considering the associated costs and benefits for the remaining use of the vehicle.
The Commission in this case accepted the employer’s argument that 40% of the usage of the car by the employee was for business purposes and the remaining 60% of the usage of the car was for private purposes. On this basis the Commission split the employee’s $20,000.00 car allowance into an amount of $8,000.00 for business use and an amount of $12,000.00 for personal use. The $12,000.00 therefore became part of the wages of the employee for the purposes of calculating their total annual rate of earnings which excluded him from being able to pursue the claim.
Monteiro v Valco Group Australia Pty Ltd
In this case, the Commission at first instance found a company Director was excluded from proceeding with his unfair dismissal claim, after determining that his car allowance and other benefits put his earnings beyond the high-income threshold. The Director appealed the decision, on the basis that it was inconsistent with the reasoning of the Commission’s in Sam Technology, which had been handed down at a similar time.
However, even on appeal, when applying the method of calculation adopted in Sam Technology, Commissioner Hunt still found that the Director’s total annual earnings of $146,241.53, which included a $15,000 car allowance, surpassed the high-income threshold.
Commissioner Hunt considered a number of allowances/benefits awarded to the Director and determined as follows:
- Payment of Health insurance: was not a reimbursement, and was rather characterised as a benefit and therefore counted towards the employee’s earnings.
- Return airfares to France for the employee and his family which were paid by the employer: were not earnings because the employer required their Director to travel to France for business purposes.
- The following vehicle benefits including allowance, parking costs and petrol allowances, were included in the employee’s earnings:
- payments for fuel in excess of the vehicle allowance;
- private component of vehicle allowance;
- private component of parking payments (excluding where the Director parked for business purposes); and
- car hire costs paid by the employer during the employee’s family holiday in France.
As a result, the totality of the allowances, together with the Director’s salary, resulted in the Director’s annual rate of earnings exceeding the high-income threshold and he was unable to pursue his claim.
Lessons for employers
These cases highlight the following:
- The importance of having in place an employment agreement that accurately quantifies and describes the value of the allowances awarded to an employee within their salary, including the value of any private use of a vehicle.
- Where no contract is in place, or where the motor vehicle allowance is not quantified in an employment agreement, employers should keep accurate records including kms travelled, petrol costs, maintenance costs and whether superannuation is paid on the vehicle allowance; and
- Where monetary sums or benefits are provided to employees in the course of their employment, accurate records should be maintained as to the purpose for which the benefit was provided, and whether the benefit was ultimately used for that purpose.
These cases also emphasise the importance of undertaking a thorough review of an employee’s total remuneration package before moving to terminate their employment. The consequences of incorrectly over-estimating an employee’s salary can result in expensive litigation which could otherwise be avoided with appropriate preparation and assessment of the employee’s actual annual rate of earnings.