High Income Threshold and Unfair Dismissal – What is a Non-Monetary Benefit?

In the dynamic landscape of employment law in Australia, a critical aspect for both employees and employers to understand is the Fair Work Act's provisions regarding unfair dismissal. Part of determining whether an employee is protected from unfair dismissal is considering, and understanding, the concept of the 'high income threshold’. The high-income threshold can include both monetary (such as wages) and non-monetary benefits. This article focusses on the latter.  

Employee Protection from Unfair Dismissal

Under the Fair Work Act 2009 (Cth) (FWA), an employee is protected from unfair dismissal if they meet the following criteria:

• .The employee has completed a minimum period of employment of at least 6 months (for business with 15 or more employees) or 12 months (for smaller businesses); and
• .One or more of the following apply:
• .A modern award applies to the employment;
• .An enterprise agreement applies to the employment;
• .The employee earns less than the high income threshold (as at 20 November 2023, the high income threshold is $162,000 per annum, and is adjusted annually on 1 July).

If an employee is protected, the process to terminate them becomes complicated. Unless there has been serious misconduct, businesses generally need to undergo a "managing out" process, which can take 6 weeks or longer. This process includes multiple steps, often including putting the employee on a performance review plan, to ensure procedural fairness and compliance with the FWA.

Determining the High-Income Threshold

Determining whether an employee is under the high income threshold is not straightforward. It needs to account for all the employee’s ‘earnings’, which include salary and other monetary and non-monetary benefits. The legislation makes some specific carveouts when it comes to what benefits are included in earnings. For example:

• Earnings include wages;
• Earnings do not include minimum mandatory superannuation payments, but may include superannuation paid over and above the minimum guarantee;
• Earnings include the agreed money value of non-monetary benefits, but do not include payments which cannot be determined in advance;
• Performance based bonuses or discretionary bonuses are generally not included.

Things can become particularly complicated when an employee receives non-monetary benefits that need to be accounted for.

Non-Monetary Benefits

Under the FWA, non-monetary benefits must have an agreed value to count towards earnings. Guidance from the Fair Work Commission and case law has confirmed that this means the value is agreed between the employee and the employer beforehand.

However, there is an exemption to this in the Fair Work Regulations, in which regulation 3.05(6) states that a non-monetary benefit can be applied to the employee’s earnings for the purposes of calculating the high income threshold if the Fair Work Commission is satisfied that:

• The employee is entitled to receive a benefit in accordance with an agreement between the employee and employer which is a non-monetary benefit; and
• It should consider the benefit for the purpose of assessing whether the high income threshold applies; and
• The Fair Work Commission can estimate a real or notional value of the benefit.

Therefore, employers can arguably account for the non-agreed value of non-monetary benefits in determining the high income threshold if they are comfortable that these requirements are satisfied. This can be difficult, however, as the regulations contemplate a high degree of Fair Work Commission discretion in considering this.

In calculating earnings in reliance on regulation 3.05(6), keep in mind the following (among other things):

• There should be an objective and stable metric to value the benefit. For example, in a 2019 Fair Work case, the Commission determined that stock options could not form part of earnings because “they are payments of amounts of which cannot be determined in advance. The value of stocks are not realised until they are traded.”
• The benefit must be pursuant to an agreement. In a 2014 case, the Fair Work Commission did not allow the value of a mobile phone and laptop to be used because there was no evidence an agreement concerning the use of those items.
• The benefit must be applicable as at the date of termination. In a 2022 case, the Commission found that the value of a company car was not to be considered as part of the earnings, because the car was replaced with a newer car 40 days prior to termination.

Recognised Non-Monetary Benefits

Fair Work Commission recognises many categories of non-monetary benefits. Some recognised examples include:

• The private use of a company-provided vehicle can be included in earnings calculations, using a specific formula to determine its value.
• Certain types of fringe benefits, especially in salary sacrifice situations, can also be considered as part of an employee’s earnings.
• Private use of phones, computers, and similar items can be included.
• A life insurance policy has been recognised, as it was paid for by the employer on the employee’s behalf.

Conclusion

Navigating the complexities of the high income threshold in the context of unfair dismissal requires a nuanced understanding of the FWA and related case law. For businesses and employees in Australia, this understanding is crucial to ensuring compliance with employment law and making informed decisions regarding employment rights and obligations. As a leading commercial law firm in Melbourne, we are committed to providing expert guidance and support in this area, ensuring that your employment practices are both legally compliant and strategically sound.

Our team of commercial law experts at Allied Legal can help, as we have a wealth of experience acting for both employers and employees. You can connect with one of our commercial law experts by giving us a call on (03) 8691 3111 or sending us an email at hello@alliedlegal.com.au.