High income threshold: why is the high income threshold important?
Employees whose annual earnings are more than the high income threshold and who are not covered by a modern award or enterprise agreement are not able to access the unfair dismissal jurisdiction. An unfair dismissal claim is the most common form of challenge to a termination of employment.
What is included in the high income threshold?
When determining whether an employee’s earnings exceed the high income threshold, an employee’s earnings include:
- wages;
- any amounts applied or dealt with on their behalf (eg. superannuation top ups or salary sacrifice); and
- the agreed value of non-monetary benefits (eg. use of a laptop or mobile phone).
When determining whether an employee’s earnings exceed the high income threshold, an employee’s earnings do not include:
- payments the amount of which cannot be determined in advance (eg. commissions, bonuses or overtime unless guaranteed);
- reimbursements for business expenses; and
- superannuation guarantee contributions that the employer is required to make.
High income threshold and unfair dismissal compensation limit
| 2020/2021 financial year | 2021/2022 financial year |
|---|---|
| $153,600 | $158,500 |
The compensation limit for unfair dismissal claims increases to $79,250.
National minimum wage (before statutory superannuation)
The national minimum wage is the minimum weekly wage payable to employees not covered by a modern award or enterprise agreement.
For modern award covered employees (subject to the exceptions below), minimum wages are increased by 2.5% from the first full pay period on or after 1 July 2021.
Increases to minimum award wages will be staggered depending on the ongoing impact of COVID-19 on certain sectors (with those most impacted rising last):
- 1 July 2021: most modern awards including those applying to the construction, manufacturing, higher education and horticulture industries, healthcare workers, teachers, childcare, social workers and vet services awards;
- 1 September 2021: the General Retail Industry Award; and
- 1 November 2021: modern awards applying to accommodation and food services, arts and recreation services, aviation, retail trade and tourism.
| 2020/2021 financial year | 2021/2022 financial year |
|---|---|
| $753.80 per week or $19.84 per hour. | $772.60 per week or $20.33 per hour. |
Tax free threshold for ‘genuine redundancy’ payments
Where the redundancy of an employee is treated by the Australian Tax Office as a ‘genuine redundancy’ under section 83-175 of the Income Tax Assessment Act 1997, certain tax-free thresholds will apply to a genuine redundancy payment paid to the employee (see Taxation Ruling TR 2009/2).
| 2020/2021 financial year | 2021/2022 financial year |
|---|---|
| First $10,989 tax free and $5,496 tax free for each completed year of service. | First $11,341 tax free and $5,672 tax free for each completed year of service. |
Superannuation – super guarantee and maximum contribution base
Employers must pay super guarantee (SG) for eligible employees at a rate of 10% of each employee’s ordinary time earnings (OTE). This is a 0.5% increase from the 2020/2021 financial year. SG is legislated to increase 0.5% each year before reaching a final value of 12% by July 2025.
SG is only payable on OTE up to the ‘maximum contribution base’, which has increased to $58,920 per quarter for the 2021/2022 financial year.
| 2020/2021 financial year | 2021/2022 financial year |
|---|---|
| $57,090 per quarter. | $58,920 per quarter. |
Superannuation – concession contribution cap
Employers make concessional contributions (eg. SG contributions and salary sacrifice contributions) on behalf of their eligible employees. Concessional contributions up to the cap are generally taxed at 15%, whereas contributions in excess of the cap are generally included as assessable income and taxed at the employee’s marginal rate of income tax (unless the employee elects to withdraw the excess contributions). The employee may also be liable for the excess concessional contributions charge in these circumstances.
From 1 July 2018 employees could accrue and carry forward unused concessional contributions cap amounts from prior years (the carry forward rule). In the 2020/2021 financial year, employees can use the carry forward rule to increase their concessional contributions cap by the unused portion of their 2019/2020 concessional contributions cap. This carry forward rule will also transition to the 2021/2022 financial year as unused cap amounts are available for a maximum of five years before expiring. Employees can only use the carry forward rule if their total superannuation balance was less than $500,000 on 30 June of the previous financial year.
| 2020/2021 financial year | 2021/2022 financial year |
|---|---|
| Employee concessional contribution cap of $25,000 per annum*. | Employee concessional contribution cap of $27,500 per annum*. |
*unless increased using the carry forward rule
‘Stapling’ of superannuation funds
New laws require employers to make superannuation contributions into new employees’ existing ‘stapled’ superannuation funds. This is a departure from the previous rules allowing employers to make superannuation contributions into the employer’s default superannuation fund if a new employee does not nominate their own fund. However, where an employee is new to the workforce and does not have an existing ‘stapled’ fund and has not nominated a fund, the employee may be defaulted into the employer’s default fund.
If you would like more information in relation to any of the new employment related thresholds, and in particular how to determine with certainty whether an employee’s earnings exceed the high income threshold and thus whether he or she can access the unfair dismissal jurisdiction, please contact one of our Workplace Relations and Safety Team members below.
This article was written by Mark Howard, Partner, Ari Schachna, Partner and Vidya Datta, Law Graduate.
