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Paying a High Income Doesn’t Make an Employee a High Income Employee
Award compliance is unquestionably important. The consequences of getting it wrong will often be significant.
Employers manage their award compliance in different ways. Some pay to the award. Others attempt to make use of an award’s express annualisation provisions. Contractual annualisation arrangements are popular, but not foolproof.
Although only available with respect to those award covered employees earning over the high‑income threshold, the use of guarantees of annual earnings is also a popular, but often misunderstood compliance option.
As background, under the Fair Work Act a modern award does not apply to a “high income employee”. A common misconception is that it’s the employee’s earnings which determine whether or not they are a high income employee. Under the Act, more is required.
Specifically, to be a high income employee:
- A ‘guarantee of annual earnings’ must be in place. This requires several things.
- The employee must be given a written undertaking that they will be paid a guaranteed amount of earnings for a period that is 12 months or more.
- The amount of the guaranteed earnings during that period must exceed the high income threshold.
- The employee must agree to accept the undertaking, and the amount to be paid.
- The undertaking, and the employee’s agreement must be given:
- before the start of the period to which the guarantee relates; and
- within 14 days of either the employment starting, or the parties agreeing to vary the terms and conditions of employment.
- An enterprise agreement must not apply to the employee.
- Before, or at the time of giving the guarantee, the employee must be notified in writing that the modern award will not apply to the employee.
- The employer must then comply with the guarantee.
The simple reality is that a contract of employment which provides an annual salary that exceeds the high income threshold will not be enough. More is required. Whether it’s done within or outside the contract, it’s fundamental for employers to meet the technical requirements if they want their employee to become a ‘high income employee’. If those requirements are not met, you’re simply left in a situation where the award is still applying to your employee who is earning a high income.
Chris Oliver, Director