Does rise in threshold impact guaranteed earnings?

The scenario

You have an employee with a written guarantee of annual earnings for a 12‑month period. At the time the guarantee was entered into, the employee’s earnings exceeded the applicable high income threshold. Since then, the threshold has increased (as it does each year on 1 July).

Do you need to adjust the employee’s salary immediately to maintain the guarantee, or does the original threshold continue to apply for the full guarantee period?

The legal position

Under section 329 of the Fair Work Act 2009, an employee is only a “high income employee” if they have a valid guarantee of annual earnings and the guaranteed annual earnings exceed the high income threshold at that time.
 
This is a continuous test and applies throughout the guarantee period, not just at the start.

The high income threshold is indexed each year on 1 July. 

What this means in practice

If the threshold increases during the guarantee period. The employee’s guaranteed earnings must exceed the new threshold from 1 July.  If the earnings do not exceed the updated threshold the employee will no longer qualify as a high income employee from that date and the modern award will apply again. 

This means employers must ensure compliance with all applicable award conditions, including minimum pay rates, overtime and penalty rates, allowances and loadings.

Note: The guarantee of annual earnings does not automatically terminate when the threshold increases. However, its effect is lost if the employee’s earnings fall below the new threshold

The employee remains covered by the award, and once the threshold is not met, the award applies in full.

Compliance risks

If an employer does not adjust remuneration, the employee becomes subject to the modern award from 1 July.  Any gap between salary and award entitlements may result in underpayment claims.

Bottom line

A guarantee of annual earnings only keeps a modern award from applying if the employee’s pay is above the high-income threshold at all times.

Because this threshold increases every year, employers need to regularly check and adjust salaries or guarantees to make sure they still meet the requirement.