Why give a high income guarantee?
If your business is subject to the Fair Work Act 2009 (Cth), on 1 January 2010, modern awards commence operation and apply to employees covered by the scope of the modern award.
However, modern awards do not apply where an employee is:
- covered by an enterprise agreement
- a high income employee.
For an employee to be a "high income employee", he or she must have a written guarantee of annual earnings from their employer for a guaranteed period, and the guarantee of annual earnings exceeds the high income threshold (currently $108,300).
What is required for a compliant high income guarantee?
When giving a high income guarantee, employers must ensure that:
- the employee is covered by a modern award that is in operation (modern awards commence operation from 1 January 2010)
- the employee is not covered by an enterprise agreement
- the guarantee is in writing
- the guarantee clearly sets out
- the amount of the annual earnings (and the earnings exceed the high income threshold, currently $108,300 (indexed annually))
- the period to which the annual guarantee applies (i.e. 12 months)
- the employee accepts the guarantee (preferably in writing)
- the guarantee and acceptance is made:
- before the start of the period stated in the guarantee
- within 14 days after:
- the employee starts working, or
- a day the employer and employee agree to vary the terms and conditions of the employee's employment
- the employee is informed of the consequences of accepting the guarantee (i.e. that the modern award will not apply).
Lessons & what employers should watch out for?
It is important that employers are aware which (if any) modern awards will apply to employees come 1 January 2010.
A high income guarantee is just that - a guarantee. If you breach it, the employee may enforce the guarantee.
A hot topic at the moment centres on what is included and excluded in the calculation of an employee's annual earnings.
As an overview, an employee's earnings include:
- wages
- the agreed value of non-monetary benefits (e.g. cars, mobile phones and laptops)
- amounts applied or dealt with in any way on the employee's behalf or as the employee directs (e.g. salary sacrificing and superannuation top-ups).
Excluded from the calculation of annual earnings are:
- payments which cannot be determined in advance (e.g. commissions, incentive-based payments, bonuses and overtime (unless guaranteed))
- reimbursements
- compulsory superannuation contributions made on behalf of an employee.
Finally, while the modern award does not apply to a high income employee, the employee continues to be covered by the modern award. The effect of this is that the employee continues to have access to certain actions under the Fair Work Act 2009, including unfair dismissal claims.
Commonly asked questions
If my employee wants to salary package a car, can we include this as earnings?
Yes, you can include this in calculating the employee's annual earnings, provided that the value of this non-monetary benefit is agreed with the employee.
If my employee resigns 4 months after I've given a 12 month high income guarantee, do I need to pay out the remaining portion of the guarantee?
No, you do not have to pay out the remaining portion of the guarantee.
Can I give my part-time employee a high income guarantee?
Yes, you can give part-time employees a high income guarantee, provided that the earnings would have exceeded the high income threshold if the employee were a full-time employee and being paid the same rate of earnings.
I have an employee on a 6 month contract. Can I give him a high income guarantee?
Yes, you can, provided the guarantee is at least half the high income threshold (i.e. $54,150). Likewise, if you had an employee on a 4 month contract, the high income guarantee should be at least a third of the high income threshold (i.e. $36,100).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
