Modern awards apply to national system employers where an award covers the employer and their employees.

However, where an employers provides a ‘guarantee of annual earnings’ to an employee who is covered by a modern award and is a ‘high income employee’, the award will cease to apply (i.e. the terms and conditions of the modern award will not apply).

This can be beneficial for employers who do not want to be restricted by the prescriptive terms and conditions within an applicable award such as: hours of work, overtime, penalties, allowances, etc.

‘High income employees’ are employees who earn in excess of the ‘high income threshold’. The ‘high income threshold’ is currently $167,500 (1 July 2023 - 30 June 2024) and is indexed annually.

Implementing a guarantee of annual earnings

In order to implement the guarantee of annual earnings:

• It must be for an employee who is covered by a modern award that is in operation
• The employee must earn no less than an amount that exceeds the ‘high income threshold’
• It must contain an undertaking in writing to pay the employee an amount of earnings in relation to the performance of work during a period of 12 months or more
• The employee must agree to accept the undertaking and must agree with the amount of the earnings
• The undertaking and the employee’s agreement must be given before the start of the period, and the period must commence within the 14 days after:
  1. The day the employee is employed
  2. A day on which the employer and employee agree to vary the terms and conditions of the employee’s employment
• An enterprise agreement cannot apply to the employee’s employment at the start of the period.

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 undertaking may be given for that shorter period.

When the guarantee period will cease

The guarantee period for a guarantee of annual earnings will cease:

• At the end of the period in the undertaking;
• Where an enterprise agreement starts to apply to an employee; or
• Where the employer revoked a guarantee of annual earnings with the employee’s agreement.

What is considered “earnings”?

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
• The agreed money value of any non-monetary benefits
• Amounts or benefits prescribed by the regulations.

 What is not considered “earnings”?

An employee’s earnings do not include:

• Superannuation
• Reimbursements
• Commissions
• Incentive-based payments and bonuses
• Payments where the amount cannot be determined in advance
• Other such payments.

‘High income employees’ who are covered by a modern award and have a ‘guarantee of annual earnings’ may still be eligible to make an unfair dismissal claim.

CCIWA’s Employment Forms Guide contains a template Guarantee of Annual Earnings letter, template HR documents and forms which are accompanied by Guidance Notes outlining how they should be used.

Employers requiring further information should contact CCIWA’s Employee Relations Advice Centre on (08) 9365 7660, email [email protected] or visit CCIWA’s website at www.cciwa.com.