Discretionary payments and the high income threshold

An employee whose rate of earnings each year exceeds the high income threshold (currently $158,500 but reviewed under a statutory formula each July) is important for several purposes under the Fair Work Act but particularly of one of the matters which is important when determining whether an employee is protected from unfair dismissal. Some (but not many) discretionary items are included, as here.

“The high-income threshold

Mr Austin’s contract of employment for the position of Surat Asset Shift Supervisor is dated 18 September 2019. Under the contract, Mr Austin had a “total fixed remuneration” of $140,000 per year, inclusive of superannuation as well as access to a performance-based Individual Incentive Plan (with potential for earnings up to an additional 8.5% of total fixed remuneration). The agreed salary is expressed to be in satisfaction of any applicable award entitlements to wages, allowances, overtime and penalty rates and annual leave loading.

The contract of employment was varied on 29 January 2020 by way of a letter to Mr Austin “to confirm changes to your remuneration package”. The changes were these:

  1. An increase in the total fixed remuneration of $10,000, to $150,000 from 1 February 2020; and
  2. Payment of a hot spot allowance of $22,500 gross per year from 1 February 2020, payable in equal monthly instalments and subject to applicable superannuation and tax withholding at the time. The hot spot allowance was to “be reviewed annually” to determine if it remains relevant and adjusted or removed accordingly at AGL’s sole discretion. The allowance was not included in incentive calculations.

It can be assumed that the changes were accepted by Mr Austin and took effect as a contract variation on and from 1 February 2020 when the changes commenced. There is no dispute that the changes applied on 30 June 2021 when the employment came to an end.

We see no arguable case of appealable error in the Deputy President’s finding that Mr Austin’s annual rate of earnings at the time of dismissal was more than the high-income threshold.

The hot spot allowance was a fixed amount that was able to be determined in advance of the entitlement to payment each year. To the extent that it was a discretionary payment, the discretion was only exercisable on an annual basis in advance, as part of an ‘annual review’. At the time of dismissal, the amount was payable to Mr Austin in accordance with his contract for the year already reviewed. It constituted earnings for the purposes of section 332 of the Act because it was a reward for his work as an employee of AGL and the amount of the allowance could be, and was, determined in advance.”

Extract from Austin v AGL Energy Limited (2021) FWCFB 6058 delivered 1 December 2021 per Catanzariti VP, Saunders DP and McKinnon C