Skip to main content
mdi-home Sign in mdi-email My Business logo mdi-home Workplace mdi-email {{getFirstName()}} ({{companyName}}) mdi-briefcase-check-outline My Documents mdi-file-sign Template Library mdi-store Company Profile {{getFirstName()}} ({{companyName}}) mdi-account-outline Profile mdi-briefcase-check-outline Documents mdi-logout Sign out Sign in
mdi-close

Offer of Guarantee of Annual Earnings

Version 1.0 Updated 24 Jan 2024
Correspondence Manage

Who can use the Guarantee of Annual Earnings?

Most, but not all employers and employees in Australia are part of the national workplace relations system (national system). This is commonly known as the “Fair Work” system. This system sets the rights and obligations of employers and employees across workplaces in Australia.

The provisions in relation to the ‘Guarantee of annual earnings’ in the Fair Work Act 2009 (Cth) apply to national system employers.

Some employers and employees are outside the national system ('excluded employers’).  Generally, the following are excluded from the national system:

  • sole traders;
  • partnerships;
  • other unincorporated entities;
  • non-trading corporations.
  • some state public sector and local government employees in New South Wales, South Australia, Queensland;
  • state public sector employees in Tasmania; and
  • some state government employees in Victoria

 

Excluded employers may wish to use this document, but they should first obtain legal advice.

Background

When modern awards came into effect on 1 January 2010, many previously award-free employees were potentially caught by the wide coverage of the new industry-based awards. However, for a ‘high income’ employee, the employer and the employee can enter into an agreement known as a 'Guarantee of Annual Earnings' (Guarantee).

The Guarantee does not replace the need to have a written contract in place.

Requirements and Other Relevant Information

What is a Guarantee and what is its effect?

The Guarantee represents a commitment by the employer to pay the employee no less than an amount that exceeds a ‘high income threshold’ during a ‘Guarantee Period’ and in exchange for that Guarantee, the terms of the relevant modern award that covers the employee ceases to apply.

The main effect of a Guarantee is that the award which previously covered the employee will cease to apply. This can be beneficial for employers who do not want to be restricted by the prescriptive terms and conditions of applicable award such as: hours of work, overtime, penalties, allowances, etc. This means that the employer can merely provide the employee with the terms and conditions offered to the employee in their contract of employment.

One significant point that employers should note with using a Guarantee is that while the Guarantee means the award no longer applies to the employee, the award still technically 'covers' the employee for the purposes of providing them with access to the unfair dismissal regime only. That is, the Guarantee does not create a jurisdictional barrier to the employee pursuing an unfair dismissal claim against an employer.

To whom can I offer a Guarantee?

A Guarantee can only be offered to employees who are covered by a modern award and earn more than the 'high income threshold'. Importantly, an employee’s earnings must exceed the high income threshold at all times while the Guarantee is in place. If it does not, then the Guarantee will not operate and the award will again begin to apply to the employee.

A part-time employee may also be offered the Guarantee on the basis that if they did work full time, their earnings would exceed the high income threshold.

The Guarantee cannot be offered to an employee who is covered by an enterprise agreement. If an employee is offered a Guarantee and later becomes covered by an enterprise agreement, then the Guarantee will cease to operate.

How do I determine if the employee earns more than the ‘high income threshold’?

The amount of the ‘high income threshold’ is set by the Fair Work Act.

The ‘high income threshold’ is currently $167,500 (1 July 2023 - 30 June 2024) and is indexed annually. Therefore, for employers to rely on the guarantee of annual earnings they will need to ensure they are paying above this threshold.

Not all components of remuneration are considered ‘earnings’ for the purposes of the Guarantee.

An employee’s earnings include:

  • The employee’s wages;
  • Amounts applied or dealt with in any way on the employee’s behalf or as the employee directs (e.g. salary sacrifice amounts);
  • The agreed money value of non-monetary benefits; and
  • Amounts or benefits prescribed by the regulations.

 

An employee’s earnings do not include:

  • Superannuation;
  • Reimbursements;
  • Payments where the amount cannot be determined in advance, such as commissions, incentive-based payments or overtime (except guaranteed overtime).

 

The Guarantee Period — what is the minimum term that a Guarantee can be offered?

A Guarantee cannot be offered for less than the ‘Guarantee Period’. A Guarantee Period must be for 12 months or more, however, if an employee is employed for less than 12 months or if the employee will perform duties of a particular kind for a period shorter than 12 months, the Guarantee may be given for that shorter period. If the Guarantee is offered for less than 12 months, an employer must ensure that the employee’s remuneration would exceed the high income threshold if the employee had actually worked for a period of 12 months.

How do I enter into a Guarantee?

The offer of the guarantee of earnings and the employee’s agreement to accept the guarantee must be given before the guarantee of earnings commences and within 14 days after:

a)    the day the employee is employed; or

b)    a day on which the employer and employee agree to vary the terms and conditions of the employee’s employment.

It is also critical that the employer, either before or at the time of entering into the written Guarantee with an employee, notifies the employee in writing that the relevant modern award will not apply to the employee’s employment during any period that the remuneration paid to the employee exceeds the high income threshold.

Record keeping

As prescribed by the Fair Work Regulations (2009), employers must retain a copy of the signed Guarantee for their records, and additionally, if an employer revokes a guarantee of annual earnings, the employer must make and keep a record of the date of the revocation.

 

mdi-plus-circle-outline Create Document