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Increases to high income threshold, maximum compensation and minimum wage

On 1 July 2016, 3 significant changes came into effect that impact both employers and employees. Firstly, the unfair dismissal high income threshold increased. Secondly, the maximum compensation for unfair dismissal claims increased. Thirdly, the minimum wage increased by 2.4%. We explain these 3 significant changes below. Maddocks Lawyers

Unfair dismissal high income threshold

The Fair Work Act 2009 (Cth) (Act) protects certain employees from unfair dismissal, if at least 1 of the following applies:

  • the employee is covered by a modern award;
  • an enterprise agreement applies to the employee in relation to his or her employment;
  • the employee's annual rate of earnings is less than the high income threshold,
and that employee has completed the minimum employment period.

The minimum employment period is:

  • 1 year — where the employer employs less than 15 employees; or
  • 6 months — where the employer employs 15 or more employees.

On 1 July 2016, the high income threshold increased from $136,700 to $138,900.

It is important to consider whether an employee is protected from unfair dismissal. For example, an employee whose annual rate of earnings is $138,900 and who is not covered by a modern award or enterprise agreement, is not protected from unfair dismissal.

Determining an employee's annual rate of earnings

To work out whether an employee's annual rate of earnings is less than the high income threshold, employers need to consider what amounts make up an employee's annual rate of earnings. It includes, but is not limited to:

  • wages;
  • voluntary superannuation contributions; and
  • the agreed value of non-monetary benefits such as a car or mobile phone.

An employee's annual rate of earnings does not, however, include:

  • statutory superannuation contributions;
  • reimbursements; or
  • payments for an amount which cannot be determined in advance.

For the purposes of unfair dismissal, when is an employee's annual rate of earnings calculated?

In Brown v Pentana Solutions P/L[1], the Fair Work Commission (FWC) recently confirmed that an employee's annual rate of earnings is assessed at the time of the employee's dismissal.

In this case, the employee was paid in US dollars. In argument regarding the employee's earnings:

  • the employee applied the exchange rate as at each date he was paid over the 12 month period immediately prior to his dismissal (this resulted in his earnings falling below the high income threshold); and
  • the employer applied the exchange rate at the date of dismissal.

Commissioner Bissett confirmed the FWC's position that an employee's earnings is assessed at the time of dismissal and not over the 12 months prior to termination.

Maximum compensation for unfair dismissal

The FWC may order an employee's reinstatement (which is the primary remedy), or the payment of compensation, if it is satisfied that the employee has been unfairly dismissed.

The compensation cap for unfair dismissal claims also increased on 1 July 2016 from $68,350 to $69,450. This means that where the FWC finds that an employee was unfairly dismissed, the maximum amount of compensation that can be ordered is $69,450.

The FWC will only consider compensation after it is satisfied that reinstatement is an inappropriate remedy. Compensation cannot be awarded for shock, humiliation or distress caused to an employee who has been dismissed. The FWC will take into account matters including the remuneration that the person would have received if they had not been dismissed, as well as the length of the person's service with the employer.

Minimum wage increase

The FWC announced that the minimum wage for employees in the national workplace relations system has increased by 2.4% from 1 July 2016. This means that the minimum wage now stands at $672.70 per week, which is calculated on the basis of 38 ordinary hours of work, or $17.70 per hour.

The national minimum wage applies to employees not covered by an award or enterprise agreement except:

  • a junior employee;
  • an employee to whom a training arrangement applies; or
  • an employee with a disability.

When considering an employment contract (such as the Cleardocs Standard Employment Contract) or industrial instruments (such as a modern award or enterprise agreement), it is important to understand the current minimum wage and that the minimum wage may change in the future.

The Cleardocs Standard Employment Contract allows a customer to specify an employee's hourly or annual rate without limitation. Customers should be particularity mindful of the minimum wage requirements when completing this product. Further, the Cleardocs Standard Employment Contract provides that the employer will review an employee's rate of pay each year but is under no obligation to increase an employee's rate of pay. Employers should be mindful of their obligations under the law as distinct from their contractual obligations.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Employment, Safety & People team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on HR topics.

Order Cleardocs Employment & HR document packages

[1] [2016] FWC 1669.


Lawyer in Profile

Alisha Wright
Alisha Wright
+61 3 9258 3007

Qualifications: BCom, LLB (Hons), Monash University

Alisha is a member of Maddocks Commercial team. She assists her clients in a variety of commercial matters.

Alisha has experience in:

  • development structuring,
  • business structuring,
  • shareholder and partnership agreements,
  • distribution arrangements, and
  • general commercial advice.

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