High income employees & a guarantee of annual earnings
Employees who earn more than the high income threshold are not automatically considered high income employees for the purposes of the Fair Work Act 2009 (FW Act). High income employees are employees who have been given a guarantee of annual earnings.
Modern awards:
- don’t apply to high income employees
- do apply to employees earning more than the high income threshold who haven’t been given a guarantee of annual earnings.
The FW Act sets out rules for giving a guarantee of annual earnings (guarantee) to an employee.
A guarantee will only apply to an employee who is covered by a modern award. This means that an award free employee or one covered by an enterprise agreement can’t enter into a guarantee with their employer.
To satisfy the FW Act, guarantees must be in writing and contain the following information:
- the annual rate of the guarantee
- an undertaking and employee acceptance
- a guarantee period.
The employer must also notify the employee of the consequences of accepting the guarantee.
The annual rate of guarantee
This is the annual amount that the employee will earn for performing their work.
The annual rate of the earnings must be set out in the guarantee and includes:
- the employee’s wages
- any amounts being dealt with on the employee’s behalf or as the employee directs, for example, additional superannuation contributions
- the agreed monetary value of non-monetary benefits, for example, private use of a car.
The employee’s earnings won’t include:
- payments which can’t be determined in advance, for example, discretionary bonuses
- reimbursements
- contributions required to satisfy the superannuation guarantee.
Pay rises
A guarantee can provide for future pay rises. The amount of the pay rise must be set out in the guarantee when it’s made.
An employee who’s accepted a guarantee must always be able to earn more than the high income threshold.
Example:
Gary is a high-income employee. His guarantee of annual earnings includes a pay rate that’s above the high-income threshold. It also says that he’ll get a pay rise each year.
The pay rise amount is the same as the increase in the high-income threshold. This means that’s Gary’s annual earnings will always be above the threshold.
If the guarantee doesn’t provide for future pay rises, each time a pay rise is given a new guarantee will have to be agreed.
The undertaking and employee acceptance
Employers must give an undertaking in writing to employees that they will pay the guaranteed annual earnings over the period of the guarantee.
The guarantee won’t be valid unless the employee accepts:
- the undertaking given by the employer
- the earnings amount set out within the guarantee.
The employer must give the undertaking and the employee must accept the undertaking before the guarantee starts and within 14 days of:
- the day the employee is employed, or
- the day when the employer and employee agree to vary the terms of the employee’s employment.
Notice of consequences
The employer must notify the employee in writing that an award won’t apply to them while the annual rate of the guarantee exceeds the high income threshold.
This notification must be given before or at the time of giving the guarantee.
The employee will remain entitled to other protections under the FW Act.
Period of guarantee
The guarantee must set out how long it will apply. It must have a fixed start date and end date.
If a guarantee expires a new one can be agreed.
National Employment Standards
The rate in the employee’s guaranteed annual earnings is paid for:
Ending a guarantee of annual earnings
A guarantee of annual earnings will usually be in place for 12 months or more. It can only be for a period shorter than 12 months if the employee:
- is employed for a period that’s less than 12 months, or
- will perform particular duties for a period that’s less than 12 months.
A guarantee ends if one of these things happens:
- the guarantee period ends
- an enterprise agreement starts to apply to the employee, or
- the employer and the employee agree to end the guarantee.
If more than one of these things happens, the guarantee ends after the one that happens first.
Can an employer or an employee end the guarantee on their own?
No. Both the employer and employee must agree to end the guarantee.
Independent advice
Employers and employees should seek independent advice to ensure a guarantee of annual earnings has been properly entered into.
Fair Work Act 2009 - sections 328 – 333A set out the definitions and requirements for a guarantee of annual earnings.
Zappia v Universal Music Australia Pty Limited T/A Universal Music Australia [2012] FWA 3208 – sets out when cars are treated as a non-monetary benefit.
Dart v Trade Coast Investments Pty Ltd [2015] FWC 4355 – the private use of technology as a non-monetary benefit.
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