How to treat allowances for the high income threshold

How to treat allowances for the purposes of the high income threshold.

The following is a very useful analysis of the law relating to how to treat allowances, benefits and other incidental remuneration for the purpose of determining whether an employee’s earnings (strictly rate of earnings) exceeds the high income threshold.

“[48] The Applicant was in receipt of the following renumeration at the time of her dismissal:

  • Base salary of $112,810;
  • Remote area allowance of $28,202.50;
  • Remote area travel allowance (RATA) of $22,720;
  • Accommodation benefits of $29,484; and
  • Medibank private health insurance valued at $1,723.20.

[49] Given that the parties confirmed that the Applicant’s employment was not covered by a Modern Award or an Enterprise Agreement, it is necessary to consider whether the Applicant’s income exceeded the high-income threshold.

[50] Section 382(b)(iii) of the Act provides that (absent a relevant Award covering the person or an enterprise agreement applying to the employment) a person is protected from unfair dismissal at a time if, at that time, the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in accordance with the Regulation, is less than the high income threshold.

[51] The high-income threshold amount was $153,600 at the time of the Applicant’s dismissal on 1 July 2020. The Applicant’s base salary of $112,810 was agreed between the parties. The contention arose in relation to the inclusion of the RATA and whether the employer provided housing and power, should be considered (as non-monetary income) for the purposes of s.382(b)(iii) of the Act.

[52] It is noted that the Respondent, having raised the jurisdictional objection, bears the onus to demonstrate that at the time of the Applicant’s dismissal, she was in receipt of full time equivalent annual earnings, as defined, above the high income threshold.

Applicants earnings at the time of her dismissal

 

[53] In relation to determining when the Applicant’s earning should be calculated, the Full Bench noted in Zappia v Universal Music Australia Pty Limited T/A Universal Music Australia[9]:

“… Section 382 of the Act relevantly provides that a person is protected from unfair dismissal at a time if, at that time, the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold. It is clear that the time at which the annual rate of earnings must be ascertained is at the time of the termination of the person’s employment. What needs to be ascertained is the annual rate of earnings at that time, not the annual earnings to that time (the amount earned in the 12 months to that time)”.

 

[54] At the time that the Applicant was dismissed, her base salary was $112,810. The Respondent submitted that this figure was a result of a remuneration review in 2020 and calculated as of 1 March 2020. Both parties acknowledged this figure to be correct.

Gove remote area allowance

 

[55] The Applicant’s letter of offer was accompanied by a schedule, setting out her renumeration and benefits, providing that as of 24 January 2014, she was entitled to a base salary of $98,308; and a remote area allowance of $24,577, which is described in the letter of offer as:

“While at Gove, you will receive an allowance the Company has declared for the Gove area, which equates to 25% of your base salary. Your allowance will be at the rate of $24,577 per annum, paid monthly.”

 

[56] The Respondent submitted that as a result of a remuneration review in 2020, those sums were, as at 1 March 2020, $112,810 and $28,202.50 respectively. The Respondent recognised that these sums comprised the Applicant’s earnings at the time of her dismissal and were not contested by the Applicant.

[57] The parties were not in dispute in relation to the Gove remote area allowance being included in the Applicant’s earnings for the purposes of s.382 of the Act, and it is considered that this amount should be included in the calculation of the Applicant’s earnings. The resulting figure (for the aggregate of these two amounts) of $141,012.5 comprising amounts attributable to the Applicant’s earnings, at the time of her dismissal. These were not in dispute between the parties.

The remote area travel allowance (RATA)

 

[58] The Respondent submitted that the RATA amount of $22,720 should be taken into account for the purposes of calculating the Applicant’s annual rate of earning for the purposes of s.332 of the Act.

[59] The Respondent noted that the Applicant contested that the RATA sum could be taken into account for the purpose of ascertaining her annual rate of earnings, and the Applicant had relied on the case of Mr Paul Davidson v Adecco Australia Pty Ltd T/A Adecco (Adecco)[10] in support of this assertion.

[60] The Respondent stated that Adecco was concisely summarised in Pasznicki v Expro Group Australia Pty Ltd (Pasznicki),[11] which stated:

“[34] In Davidson v Adecco Australia Pty Ltd T/A Adecco …, Commissioner Booth found in the circumstances of that case that the travel allowance paid to the employee was not wages because the allowance was paid in contemplation of offsetting the employee’s expenses in providing, running and maintaining his own vehicle for the purposes of performing his duties. According to Commissioner Booth, the allowance recompensed the employee for business related costs and therefore could not be categorised as a payment for his work or services.

[35] In the Davidson Case the employee’s contract provided that a travel allowance of $16,000 must be used in accordance with the company policy. The contract went on to provide that, pursuant to the relevant company policy, the employee was not entitled to claim reimbursements for any work related travel. The employee in question was employed as a sales agent. He was required to travel between 20,000 – 30,000 km per year over a large geographical area on company business. At the hearing he tendered at statutory declaration claiming all the travel he undertook in his vehicle was business related and he undertook little or no personal travel. There was also evidence tendered that the entire travel allowance was spent on business related travel.” (emphasis added)

 

[61] The Respondent submitted that it was on that basis, that the entire travel allowance was spent on business related travel, that Booth C found that the travel allowance in Adecco did not fall within the categories of payments referred to in s 332(1)(a) and (b) of the Act.

[62] The Respondent further noted that the case of Adecco, was distinguished in Pasznicki, on the basis that the evidence in that case demonstrated that the relevant travel allowance, was payable even though the travel was far more incidental to the role of the employee in that case; and what work travel was undertaken, was the subject of separate reimbursements. In those circumstances, and where the employer in Pasznicki had no unilateral right to withdraw the travel allowance, Binet DP was satisfied that the sum was part of the ‘wages’ paid to the employee, and that it was not a reimbursement.

[63] The Respondent submitted that Binet DP’s finding on the reimbursement point was uncontroversial, in circumstances where the Explanatory Memorandum to the Fair Work Act provided that, for the purposes of s.332 of the Act:

“Other payments that are excluded from the definition of earnings are reimbursements for expenses incurred on behalf of the employer and statutory superannuation contributions.”[12] (emphasis added)

 

[64] The Respondent argued that the legislative guidance for s.332 of the Act does not disclose an intent to apply a broad meaning to the term ‘reimbursement’ so as to include sums paid to compensate employees for any and all expenses that they might be incurred, to enable them to provide their labour to an employer. The Respondent offered, by way of example, that although an allowance payable to compensate an employee for the costs of fuel and other expenses, incurred in the use of their vehicle while driving between work sites, may be a reimbursement for the purposes of s 332,[13] an allowance payable to compensate an employee for the costs of travelling to their usual work site, will not. This was set out as the latter is not an expense, incurred on behalf of the employer. The Respondent submitted that this was a view that was endorsed by Bisset C in Monteiro v Valco Group Australia Pty Ltd,[14] where, by reference to the Explanatory Memorandum, the Commissioner held that the term ‘reimbursement’ in s.332 does ‘not cover any expense incurred by an employee in their everyday life’.[15]

[65] Further, the Respondent submitted that the Full Bench of the Commission held in Sam Technology Engineers Pty Ltd v Mr Andrew Bernadou,[16] (Sam Technology) that:

A. a vehicle allowance (although the case dealt with a vehicle allowance, the principles set out in that case are equally applicable to travel allowances more generally) will not typically consist of an employee’s ‘wages’ ‘save for circumstances where the car allowance is, in reality, paid to the employee as a means of providing the employee with additional income and there is no requirement or expectation that the employee will have to use their car for work purposes’;[17]

B. ‘reimbursement;’ within the context of s.332(2) refers to a repayment of a sum that is incurred, or at least that is expected to be actually incurred, rather than the prepayment of some more general sum;[18]

  1. importantly:

“the definition of ‘earnings’ in s.332 of the Act is non-exhaustive and as such, ”earnings” should be given its ordinary meaning (subject, of course, to the payments and benefits referred to in s.332(1) being included in the meaning of ”earnings” and the payment and benefits referred to in s.332(2) being excluded from the meaning of ”earnings”).”

 

  1. where a vehicle allowance was paid in circumstances where it was expected that the employee would use their car for work purposes, then it was necessary to consider the private benefit that the person obtained by way of that allowance, with that sum not counting toward the employee’s earnings.

[66] The Respondent argued that it is clear from the authorities referred to above, that, where an allowance or other entitlement may be withdrawn at any time, it is not one that is capable of falling within the meaning of earnings under s 332(1) because, as a result of such a discretion, the payment cannot be determined in advance (having regard to s 332(2)(a) of the Act).

[67] The Respondent submitted that, the Applicant’s claim that the RATA effectively amounts to a reimbursement must necessarily fail. It was argued that the fact that the Applicant was provided with an additional sum of money, to assist her to cover the costs of travel to and from Gove is entirely unrelated to any expenses that she might incur on behalf of the Respondent. The Respondent further argued that this is particularly so, when reference is had to the fact that, in the Applicant’s case, the vast bulk of her RATA entitlements, was attributable to her three dependants.

[68] The Respondent argued that the RATA was arguably not a term of the Applicant’s contract of employment. In that regard, the Applicant’s contract of employment provided that:

“In recognition that Gove is in a remote area, you will be eligible for Remote Area Travel Assistance in accordance with the Gove Remote Area Travel Assistances (RATA) Guidelines.”

 

[69] The Applicant’s contract of employment also provided:

“In addition to the terms and conditions outlined in this contract, you are required to comply with all reasonable directions by the Company and policies, procedures and standards that apply to your employment. Such policies include (but are not limited to) the Company’s Code of Conduct and The Way We Work.

You must familiarise yourself with the Company’s policies, procedures and standards. The Company retains the discretion to vary the policies, procedures and standards.

Failure to comply with Company policies, procedures and standards could result in disciplinary action, which may include termination of your employment.

The benefits provided to you under our policies are discretionary in nature and do not form part of your contract of employment. (emphasis added)

No duty of trust and confidence imposing obligations on the Company can be implied into this contract of employment.

Details of our policies, procedures and standards are available from Human Resources or on the Company intranet.”

 

[70] The Respondent submitted that it is arguable that the reference to the RATA ‘guideline’ is intended to be separate and distinct from the ‘policies, procedures and standards’ referred to in the above carve out clause. However, the Respondent stated that whether the RATA entitlement arises out of a contractual entitlement, is not determinative of it being capable of being determined in advance.

[71] The Respondent further submitted that an important overlay in this matter, was the existence of the Rio Tinto Gove Enterprise Bargaining Agreement 2017 (2017 EA). Although the Applicant was not covered by the 2017 Agreement (as she was a staff employee who did not fall within any of the 2017 EA’s classifications). The terms of the 2017 Agreement nevertheless have the effect that the Respondent did not have any discretion to withdraw the entitlements provided under it so far as the Applicant’s employment was concerned. The Respondent stated that this is because the Respondent’s entitlement to make any amendment to the RATA policy, including to the terms of who the RATA policy provided was eligible for RATA entitlements, was restricted by clause 37 of the EA, which was in the following terms:

“37) Remote Area Travel Assistance (RATA)

RATA will be granted to assist Employees and their families in spending time in another locality and maintain family contacts.

The conditions applicable to receiving RATA are set out in the RTA- Remote Area Travel Assistance (Gave) policy.

The amount of RATA shall be adjusted to remain 13% above any movement in the Benchmark as agreed between RTA and the Senior Site Delegates. The annual review of the Benchmark is to occur in January each year and any adjustment will occur following this review. Any other proposed changes to the RATA policy will be by agreement between RTA and the Senior Site Delegates.

Temporary Employees engaged on a fixed term for 12 months or less, Part Time, Casual, Job Sharers, and FIFO Employees are not eligible for RATA.”

 

[72] The Respondent argued, that in other words, so long as the Agreement was in force (and its nominal expiry date of 15 November 2020 was well after the Applicant’s entitlement to the RATA for 2020 will have crystallised on 4 September), the entitlements that the Applicant qualified for under the RATA were capable of being determined in advance. The fact that, at some point, the 2017 EA might have been replaced, or clause 37 removed, does not detract from the predictability of the RATA entitlement for the purposes of s 332(2). That section cannot require that a sum be capable of a permanent determination in advance, given that the parties to a contract, always have the right to vary it, including by agreeing to less favourable terms. The RATA cannot be considered as a reimbursement.

[73] In addition, the Respondent submitted that it was not in dispute that the RATA entitlement crystallised on the Applicant’s anniversary of a year’s service. However, that fact alone does not mean that the sum was not capable of being determined in advance, or that it should fall outside of the non-exclusive definition of earnings in s.332.

[74] I accept the Respondents submission, that the RATA does not fall outside of the non-exclusive definition of earnings in s.332 of the Act. I am satisfied, on the basis of the reasoning set out, that this figure should be included in the calculation of the Applicant’s earnings for the purposes of s.332.

Employer supplied housing and power

 

[75] The Applicant was provided with housing and power by the Respondent throughout the course of her employment. Employees of the Respondent who were not originally from East Arnhem Land were provided with accommodation by the Respondent in the town of Nhulunbuy. At the time of the Applicant’s dismissal, she was being housed in a four bedroom home, together with her husband and two children. The cost of all electricity and gas were also paid for by the Respondent.

[76] The Respondent stated that the accommodation provided to the Respondent’s employees were also supported by residential tenancy agreements that set a nominal amount of rent that was payable by employees for the accommodation. In the Applicant’s case, she paid $13 rent, per month, for the four bedroom house.

[77] Section 332 (1)(c) of the Act provides that ‘earnings’ include the ‘agreed monetary value of non­monetary benefits’. The Applicant submitted that during her employment with the Respondent, there was never any agreement as to the value of non-monetary benefits including the value of housing and power. The Applicant submitted that it would be unfair for the Commission to exercise its discretion to include any value for accommodation or the supply of power given the remoteness of the place of employment, and there was never any agreed value attributed to such.

Was there an agreement to provide a benefit? (reg 3.05(6)(a))

 

[78] The Applicant’s contract of employment contained the following clause in relation to the provision of accommodation:

“Accommodation The Company provides accommodation and an accommodation benefit for permanent employees residing in Gove in accordance with the Gove Accommodation Policy.”

 

[79] The Respondent asserted that that in having regard to ‘what a reasonable person would understand by the language’ of the Applicant’s employment contract, in light of the circumstances, it is clear that the provision of accommodation to the Applicant was a contractual term of the contract; and that the Gove Accommodation Policy merely set the parameters for the type of accommodation that would be provided to the Applicant and her family, but was not the source of the right to accommodation.

[80] The Respondent further argued that the following factual matrix was known to the Applicant at the time her contract of employment was made:

“The Applicant’s contract expressly provided that the role which was offered was ‘based at Gove’ and that she would ‘residing in the town of Nhulunbuy on a full-time ongoing basis’.

The contract also provided that offer was ‘for a role which [was] to enable [the Applicant] to remain at Gove’.

At the time, the vast majority of accommodation at Nhulunbuy was owned by RTA’s related entities, and there only a very limited private rental market. At the time the contract was signed, the Applicant was living in accommodation provided by the Respondent.

Around the time the Applicant’s contract of employment was made, the Respondent’s accommodation policy for Gove set out the nominal rent to be charged under residential tenancy agreements that would be made with its employees, the size of accommodation that employees would qualify for (depending on the size of their family), and the circumstances in which employees might be put up in larger or smaller accommodation than they might have at a particular moment in time. Other than implicitly in the event of a breach of an employee’s residential tenancy or termination of employment, the policy did not contemplate any circumstances in which an employee of RTA would not be provided with accommodation during the course of their work.”[19]

 

[81] The Respondent submitted that in those circumstances, a reasonable person would not have understood that the reference to accommodation being provided to the Applicant was not intended to have contractual force. This is particularly so, given that a unilateral withdrawal of that accommodation would have likely made the terms of the employment uneconomical for the Applicant.

Has a reasonable monetary value not been agreed between Rio Tinto and Ms Chieng (reg 3.05(6)(b) and s 332(3))?

 

[82] The Respondent noted that the Applicant’s submissions conceded that ‘there was never any agreement as to the value of non-monetary benefits including the value of housing and power’. The sum of rent chargeable under the accommodation policy was $13 per month. Having regard to the significant cost of rental properties on the private market in Nhulunbuy, the Respondent submitted that the Commission should infer that the rental sum was a nominal one that did not represent a reasonable monetary value of the property.

[83] I accept the Respondent submission that the $13 rent paid by the Applicant, represented a nominal amount and did not accurately represent the monetary value of the property.

Should the accommodation benefit be taken into account? (reg 3.05(6)(c))

 

[84] The Respondent referred to the decision of Robinson v A J Gandel (Gandel),[20] where Wilson C distinguished between benefits that are purely incidental to employment and those that are not. He also suggested that, where an employee’s benefit substantially also benefits an employer, then that may be a factor that might militate against that benefit being taken into consideration for the purposes of regulation 3.05(6).

[85] The Respondent submitted that, in this case, even if it is accepted that the benefit that the Respondent obtained by having the Applicant living close by, is a consideration that weighs in favour of any accommodation benefit, being incidental to her work, the benefit that the Applicant obtained from the arrangement is significantly greater. This is so when regard is had to the fact that it allowed her dependants and spouse to live in that accommodation, essentially rent free, and where it enabled her to avoid the disruption and family disconnection which a FIFO arrangement would otherwise have caused.

[86] The Respondent further argued that it is also appropriate that the benefit be taken into account, in circumstances where the Applicant and her family did not bear the burden of paying utilities associated with the property provided to them by the Respondent.

Can the FWC estimate a notional money value for the benefit?

 

[87] The Respondent submitted that the true benefit that the Applicant and her family received, it is submitted, must be considered against the cost of comparative properties on the private market. That task is significantly easier than was once the case, given that 250 previous Rio Tinto properties have been transferred to Developing East Arnhem Land (DEAL) in light of Rio Tinto’s lower footprint on Gove, given the progressive demolition of its aluminium refinery. It was set out that the sums charged by DEAL for rent appear conservative when compared to those that are rented through the purely private market. That may be related to the beneficial purpose for which DEAL was established, being to spur economic growth in East Arnhem land. In any event, however, even if the lowest figure of $580 (which is charged by DEAL for a four bedroom house) is used, then the notional benefit that the Applicant and her family received is $567 per week, which translates to a benefit of $29,484 per year. It was raised that even if only the benefit that the Applicant received through the accommodation of her family is taken into account, that sum ($22,113, as calculated by dividing the earlier sum by four and multiplying by three to represent the Applicant’s three dependants) easily causes the Applicant’s annual rate of earnings to exceed the high income threshold.

[88] I do not consider that the $13 rent paid by the Applicant constitutes a reasonable monetary value that has been agreed between the parties in relation to the provision of housing and power to the Applicant and her dependants. The Respondent’s submission that it would be appropriate for the Commission to estimate a notional monetary value for the benefit for the accommodation and power is not accepted. On this basis there was no agreed value of these non-monetary benefits and such benefit should not be included in the calculation of the Applicant’s earnings for the purposes of s.332 of the Act.

Private health insurance

 

[89] The Applicant was provided with Medibank private health insurance valued at $1,723.20 per annum. Neither party made submissions addressing the inclusion of the health insurances as ‘earnings’ for the purposes of s.332, however it is appropriate to consider this amount, in line with the relevant case law and legislation.

[90] The Full Bench in Savannah Nickel Mines Pty Ltd v Crowley (Savannah),[21] found that the cost of a premium for a life insurance policy, which was paid for by the employer, was found to be an amount applied or dealt with on the employee’s behalf and subsequently included in calculating the employee’s income.

[91] The private health insurance paid for by the Respondent, to the benefit of the Applicant, is a comparable benefit in nature to life insurance policy, insofar as it is an insurance policy made for the Applicant’s benefit. In accordance with s.332(1)(b) the private health insurance policy, valued at $1,723.20 per annum, would be considered an amount applied or dealt with in any way on the employee’s behalf and therefore where paid for by the employer, should be considered earnings. On that basis the amount of $1,723.20 should be included in the calculation of the Applicant’s earnings for the purposes of s.332. The inclusion of this figure is determinative of the matter.

Superannuation

 

[92] Compulsory superannuation contributions are not taken to be included in the calculation of an employee’s earnings for the purposes of s.332 of the Act.[22] The Respondent did not make submissions in regard to their compulsory contributions to the Applicant’s superannuation fund and it can be taken that these contributions were not considered earnings, in accordance with s.332(2)(c) of the Act.

CONCLUSION

 

[93] For the reasons set out above, the following calculations are applicable to the high income threshold; the Applicant’s base salary of $112,810, the Gove remote area allowance of $28,202.50, the RATA of $22, 720 (and the private health insurance of $1,723.20) are considered earnings for the purposes of s.332 of the Act, and subsequently equate to a total of $165,455.70 at the time of the Applicant’s dismissal. This amount is above either of the high income threshold amounts relevant to the dismissal dates; as set out earlier.

[94] A Modern Award or Enterprise Agreement did not apply to the Applicant in relation to her employment, and as detailed her earnings exceeded both of the relevant high-income threshold amounts, (whether the dismissal date is taken as at 30 June 2020 or 1 July 2020). The Applicant, therefore, in accordance with the legislation, cannot be determined to be a person protected from unfair dismissal as per s.382 of the Act.

[95] Therefore, for the purposes of section 382(b)(iii) of the Act, the sum of the Applicant’s annual earnings and such other amounts worked out in relation to the nature of her work and in accordance with the Regulation, is more than the high income threshold. Accordingly, as per section 382(b)(iii) of the Act, the Commission does not have jurisdiction to hear the unfair dismissal application. The application made pursuant to section 394, is therefore dismissed.”

Ms Catherine Chieng v Rio Tinto Aluminium Limited T/A Rio Tinto Alcan Gove [2020] FWC 5264 (21 October 2020) per Spencer C