The Full Bench of the Fair Work Commission has determined that regular overtime payments may be regarded as part of an employee’s regular income. This ruling may affect certain employees’ rights to make an unfair dismissal claim, as the inclusion of these payments may tip them over the prescribed high income threshold.
Pursuant to the Act, an employee is protected from unfair dismissal if that person has completed a minimum employment period with the employer and one or more of the following apply –
- An Award covers the person;
- An Enterprise Agreement applies to that person; and/or
- The “sum of the person’s annual rate of earnings, and such other amounts (if any)…is less than the high income threshold”
The latter requirement was the subject of a case before the Full Bench of the Fair Work Commission.
Case study: Foster v CBI Constructors Pty Ltd
In that case, an employee (who was award and agreement free) made an unfair dismissal claim against his employer. The employer argued that the employee was barred from making such an application as his earnings pushed him above the high income threshold. The amount in dispute between the parties was the overtime earned by the employee – $7,113.35 per year – which, if included, would make the employee’s annual earnings $129,339 – $39 above the high income threshold of $129,300.
In considering whether overtime should be included as part of the employee’s earnings, the Full Bench had regard to the meaning of ‘earnings’ in the Act and the regularity of the payment of the overtime.
The Act states that an employee’s earnings will include wages but will not include amounts which cannot be determined in advance. Therefore, overtime which is guaranteed could form part of the employee’s earnings.
In this case, the employee was required to attend a ‘pre-start’ meeting each morning at 6am for half an hour, which was treated as overtime. The question the Full Bench had to determine was – could the employee “have a confident expectation each week that he would receive 2.5 hours each week in overtime as a result of the pre-start meetings?” and further, “whether the overtime payments that [the employee] received for attending the regular pre-start meetings were able to be determined in advance”. The employee had attended these meetings for the past 2 years and it was mandatory that he do so. The amount he earned for attending the meetings was fixed according to his hourly rate.
The Full Bench held that the employer “had unequivocally directed to all employees that work was not to commence until the pre-start meeting had been commenced”. As a result of this direction, the employee in question was in fact “subject to an ongoing direction from his employer that he must work half an hour’s overtime everyday that he worked”. The regularity of the meetings therefore meant that the overtime payments formed part of his annual rate of earnings.
What does this mean for employers?
Employers who are subject to an unfair dismissal claim from an employee who is teetering around the high income threshold should calculate all of the payments made to the employee to determine the totality of his/her regular annual earnings. Whilst bonuses (which are fluctuating in nature) would not be included, regular and systematic payments made outside of wages which can be determined in advance may be taken into account, therefore protecting employers from unfair dismissal claims from high earning employees.
HR Legal can assist you if you require advice on the classification of payments made to employees.
This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.