Guarantee of annual earnings to avoid award obligations

Under the Fair Work Act 2009 employers and ‘high income employees’ may enter into what is called a ‘Guarantee of Annual Earnings’ agreement with each other, and thus avoid the application of a modern award which might otherwise affect the employment terms. A guarantee of annual earnings agreement may, for example, avoid an obligation to pay overtime or other penalty rates provided for by a modern award, provided that the agreed terms are at least equal to those provided for by the National Employment Standards.
 
A ‘high income’ employee is defined in sec 329 of the Act and is until 1 July 2014 an employee whose annual rate of the guarantee of annual earnings exceeds the high income threshold of $129,300. The high income threshold is calculated annually by an indexation formula.
 
The following are included in calculating whether the annual rate of earnings exceeds the high income threshold, namely salary, other amounts such as those ‘salary sacrificed’ or otherwise dealt with as directed by the employee, the agreed value of non-monetary benefits received by the employee and finally the amount of an employer’s superannuation contribution if it exceeds the statutory 9%. Bonuses and incentives do not count in the calculation of the ‘high income’ threshold, on the basis that they cannot be calculated in advance.
 
The high income threshold is also important because employees whose annual rate of earnings exceeds it cannot take proceedings for unfair dismissal.