The beginning of the financial year on 1 July 2021 marks the date on which a number of employment-related rates will increase. In addition to wage increases arising from the Fair Work Commission’s recent Annual Wage Review that we dealt with in a previous article, we highlight other increases to the high income threshold, tax free amounts for redundancy payments, the superannuation contribution rate and the maximum superannuation contribution rate in this post.
High income threshold
The Fair Work Commission has announced that the high income threshold will increase to $158,500 per annum from 1 July 2021.
The high income threshold is calculated based on an employee’s annual rate of earnings, as defined in the Fair Work Act 2009 – which means it includes wages, salary sacrifice and the agreed value of any non-monetary fringe benefits, for example use of a vehicle. It does not include superannuation nor those payments that cannot be determined in advance, such as overtime, discretionary bonuses and commission.
The importance of the high income threshold is that it:
- distinguishes between those employees who can and cannot make an unfair dismissal claim – employees paid above the threshold (if they are not covered by any enterprise agreement or modern award) are barred from making an unfair dismissal claim;
- increases the compensation limit for unfair dismissal matters – compensation is capped at half of the high income threshold (that is, from 1 July 2021, $79,250); and
- sets out the minimum amount of guaranteed earnings to be met for an employee to be a ‘high income employee’ for the purposes of award coverage – modern awards do not apply to high income employees whose terms of employment include a guarantee of annual income, even when they might otherwise be ‘covered’ by a modern award.
Tax free amounts for redundancy payments
Income tax legislation allows for employees whose employments are terminated by reason of genuine redundancy to receive at least some of their eligible redundancy payments tax free. The actual amount of a tax-free component depends on an employee’s period of continuous service with the employer.
The Australian Taxation Office has announced that the base amount and service amount used in determining an employee’s tax-free amount will increase to $11,341 and $5,672 respectively from 1 July 2021.
For example, an employee who has continuous service with an employer of at least three years but less than four years will be entitled to have up to $28,357 gross of combined eligible redundancy payments treated as tax free – that is the sum of the base amount of $11,341 plus the total service amount of $17,016 (ie. three completed years of service multiplied by $5,672).
Superannuation contribution rate
Unlike the other rates dealt with in this post, the superannuation contribution rate is not an indexed rate – rather, it was subject to timetabled increases set by legislation to lift the rate from 9% of ordinary time earnings to 12% over a number of years. While the timetable was delayed for a time, the superannuation contribution rate will increase for the first time in a number of years to 10% of ordinary time earnings from 1 July 2021.
At present, it is planned that the superannuation contribution rate will continue to increase by 0.5% each coming financial year until it reaches 12% in July 2025.
Maximum superannuation contribution base
Employers are only obliged to pay superannuation contributions on an employee’s ordinary time earnings up to a particular level – this is called the ‘maximum superannuation contribution base’. In other words, subject to any more generous contractual obligations, an employee will not be entitled to superannuation contributions to be paid on their behalf on any ordinary time earnings that exceed this base.
The Australian Taxation Office has also announced that the maximum superannuation contribution base will increase to $58,920 gross per quarter from 1 July 2021, which equates to a total of $235,680 over the course of the financial year.
It is important for employers to have regard to these new rates that will apply from 1 July 2021 and understand how they may impact on current arrangements. While all employers will be affected by the increase to the superannuation contribution rate, the other changes could also have implications for decision making in the workplace.
If you would like more information about these changes or their implications on your operations, please contact a member of our Employment, Workplace Relations and Safety team.
Jonathon Corlett | Partner | +61 2 8248 5851 | [email protected]