In a recent decision, the Fair Work Commission has ruled that payments made on an annual basis by an employer to help reduce an employee's fringe benefits tax liability are not counted as earnings. The decision resulted in the employee's remuneration falling below the high-income cap and meant that it was open to the employee to pursue an unfair dismissal claim.
Introduction
Under section 382 of the Fair Work Act 2009 (Cth), a person is protected from unfair dismissal if, at the time of dismissal, the sum of the person's annual rate of earnings is less than the high income threshold (currently, $162,000.00).
In David Paul Lonnie v WA Council on Addictions Incorporated [2023] FWC 673, the FWC upheld that payments made for the purposes of reducing the employee's fringe benefits tax (FBT) did not contribute to the employee's annual renumeration. This resulted in the employee's total annual renumeration falling below the high income threshold allowing the employee to lodge an unfair dismissal claim.
Facts
Mr Lonnie was employed by the Western Australian Council as a general manager. As part of his renumeration package, Mr Lonnie received a salary and had the benefits of use of a motor vehicle, mobile phone and laptop computer for business and private use. The employer paid the employee a gross salary adjustment of about $6,000 a year, to cover his FBT liability.
Section 332 of the FWA provides that an employee's earnings include wages, non-monetary benefits, and other benefits prescribed by the Regulations. The issue in contention was whether FBT should be included in the employee's earnings.
FBT may or may not be included in earnings depending on whether the amount was dealt with in accordance with the employee's directions.
The case of Rofin Australia Pty Ltd v Newton (1997) 78 IR 78 is authority for the proposition that, where the employer has the discretion to provide a particular benefit to an employee, the FBT should not be counted in the employee's total annual remuneration. In that case, the Full Bench found that any employer-paid FBT for provision of a vehicle should be excluded when calculating earnings. This is distinct from a genuine salary sacrifice situation where an employee has foregone wages at their own discretion in return for a benefit, in which case FBT would be included as renumeration.
The Lonnie case followed the approach in Rofin and highlighted the fact that FBT is a 'tax paid by the employer', not 'remuneration'. FBT is not paid to the employee, nor is it paid on behalf of or at the direction of the employee and would not fall into the ordinary meaning of renumeration. The gross salary adjustment was not included when calculating the general manager's earnings and the FWC found that Mr Lonnie's earnings totalled $153,500, including wages ($142,000), the agreed vehicle value ($10,800), mobile phone ($800) and laptop ($130).
Key takeaways for employers in calculating employee earnings
The decision is a helpful reminder for employers to become familiar with what will, and what will not, form part of an employee's annual rate of earnings when assessing whether they exceed the high income threshold.
When assessing the high income threshold, employers should consider:
- the employee's annual rate of earnings, which requires an examination of several factors, including those set out in section 332 of the FWA
- whether any amounts should be added to the employee's annual rate of earnings because of factors included in the Regulations.
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