Unfair Dismissal High Income Threshold: Employer Rules In Australia

Ending someone’s employment is one of the most legally sensitive steps you can take as a business owner.

Even when you feel you’ve done the “right thing” (for example, performance has been poor, conduct has been inappropriate, or the role genuinely isn’t needed anymore), the process you follow matters - a lot.

One concept that often gets misunderstood is the unfair dismissal high income threshold. Many employers hear “high income threshold” and assume it’s a simple rule that prevents unfair dismissal claims altogether for higher paid staff.

In reality, the high income threshold can be a helpful protection in the right circumstances, but it’s not a free pass to terminate without risk. The details matter - including whether a modern award or enterprise agreement applies, whether the person’s “earnings” actually sit above the threshold, and the fact the threshold is assessed at the time of dismissal.

Below, we break down what the unfair dismissal income threshold is, how it applies, what traps to watch for, and what practical steps you can take to reduce risk when exiting an employee.

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What Is The Unfair Dismissal High Income Threshold?

The unfair dismissal high income threshold (sometimes also called the high income threshold for unfair dismissal) is a dollar amount set under the Fair Work framework that can affect whether an employee is eligible to make an unfair dismissal claim.

As a general rule, an employee can bring an unfair dismissal claim if they:

• have completed the required minimum employment period (usually 6 months, or 12 months for a “small business employer”); and
• are covered by a modern award or enterprise agreement, or earn less than the high income threshold.

This means the threshold is relevant mainly where an employee:

• is not covered by a modern award; and
• is not covered by an enterprise agreement; and
• earns above the high income threshold at the time of dismissal.

If those conditions apply, the employee is generally not protected from unfair dismissal under the Fair Work Act’s unfair dismissal regime (though other legal risks can still apply - we cover those below).

Why This Matters For Small Businesses

If you employ professionals, managers, senior specialists, or technical staff on higher salaries, the high income threshold can become part of your termination risk assessment.

But it’s important to treat it as one factor, not your whole strategy. A well-run termination process is still your best protection.

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How Do You Work Out Whether The Threshold Applies?

To apply the high income threshold rule properly, you need to work through two practical questions:

1. Is the employee covered by an award or enterprise agreement?
2. If not, do their “earnings” exceed the high income threshold?

1) Award Or Enterprise Agreement Coverage Comes First

A common mistake is jumping straight to salary. In practice, a lot of employees are award-covered even on high salaries - particularly in industries with broad modern awards.

If a modern award or enterprise agreement applies, then the high income threshold won’t exclude them from unfair dismissal eligibility. In other words, you can’t rely on the salary threshold approach if an award or enterprise agreement applies.

If you’re unsure, it’s worth getting advice early, because award coverage can be surprisingly complex (and getting it wrong can create other Fair Work issues).

2) What Counts As “Earnings” For Threshold Purposes?

Even where there’s no award or enterprise agreement, the next question is whether the employee’s earnings sit above the threshold.

“Earnings” is not always the same as “base salary”. It’s a defined concept under the Fair Work framework and generally focuses on amounts paid for the employee’s work. Depending on the circumstances, it can include things like:

• the employee’s base rate of pay;
• guaranteed allowances;
• monetary benefits the employee actually receives (for example, certain guaranteed benefits valued in money);
• salary sacrifice amounts (where the sacrificed amount would otherwise have been paid to the employee as wages); and
• commissions or bonuses, but typically only to the extent they are guaranteed/contractual rather than purely discretionary or one-off.

It generally does not include:

• compulsory superannuation contributions; or
• reimbursements for expenses (for example, repaying an employee for costs they incurred on the business’ behalf).

Because the details can get technical, it’s a good idea to calculate this carefully before you assume the unfair dismissal high income threshold applies.

Also keep in mind: the high income threshold changes over time (it’s typically indexed each year). So even if someone was above it last year, they might not be above it this year (or vice versa), depending on salary increases and indexation changes. The relevant point in time is the employee’s earnings at the time of dismissal.

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Common Employer Traps With The High Income Threshold

Even if you’ve identified that an employee may be above the unfair dismissal income threshold, there are still several ways employers get caught out.

Trap 1: Assuming “High Salary = No Claim Risk”

Even where the employee can’t bring an unfair dismissal claim, they may still bring other types of claims, such as:

• general protections claims (also known as adverse action);
• discrimination claims under federal or state law; or
• breach of contract claims (for example, unpaid notice, unpaid incentives, or disputes about restraint clauses).

So while the high income threshold may reduce one category of risk, it does not eliminate termination risk overall.

Trap 2: Getting Award Coverage Wrong

If you treat someone as “award-free” but they’re actually covered by a modern award, they may still be eligible to bring an unfair dismissal claim even if they earn above the threshold.

Award coverage can depend on:

• the employer’s industry;
• the employee’s duties and classification level; and
• whether an award specifically covers that kind of work.

This is also why a well-drafted Employment Contract matters - it won’t override an award, but it helps define the role properly and reduces disputes about entitlements and termination terms.

Trap 3: “Contracting Out” Of Unfair Dismissal

You can’t contract out of the unfair dismissal laws. Putting a clause in the employment contract that says “the employee agrees not to bring an unfair dismissal claim” is unlikely to be effective (and can create other problems).

The safest approach is to assume your termination process could be scrutinised, and run a fair, evidence-based process regardless of salary.

Trap 4: Rushing The Exit Without Process

Even for senior and high-income employees, it’s risky to jump straight to termination without:

• clear performance expectations;
• warnings and an opportunity to improve (where appropriate);
• an investigation process for misconduct (where relevant); and
• proper notice and final pay calculations.

If you’re dealing with a serious issue and you’re not sure whether to terminate immediately or run a process first, a formal “show cause” step can be a practical risk-management tool. In many workplaces, Show Cause Letters help you clearly put allegations to the employee and document their response before you make a final decision.

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Practical Steps To Reduce Termination Risk (Even Above The Threshold)

If you’re exiting an employee who may be above the high income threshold, the best approach is still to run a legally disciplined process.

Here are practical steps that generally put employers in a stronger position.

1) Get The Basics Right: Contract, Role, And Records

Before any termination decision, check your paperwork:

• Employment contract: does it clearly state notice, duties, and any incentive structures?
• Policies: do you have conduct/performance processes that match how you’ve handled the issue?
• Records: do you have written warnings, performance notes, meeting notes, and objective evidence?

Where your documentation is weak, your risk increases - even if you think the unfair dismissal high income threshold removes unfair dismissal exposure.

2) Consider Whether Probation Helps (But Don’t Over-Rely On It)

Probation can be a useful time to assess fit and performance, but it doesn’t eliminate all risk, and it doesn’t necessarily stop other claims (like general protections or discrimination).

If you’re managing an early exit, you still need to handle communication carefully and comply with the contract. If you’re unsure what’s lawful, termination during probation can raise issues that are easy to miss in practice.

3) Use A Fair Performance Process Where Appropriate

For performance issues, a fair process typically includes:

• a clear description of the performance concerns (with examples);
• reasonable support and training where needed;
• a reasonable time to improve (this depends on the role and issue);
• regular check-ins; and
• clear communication of consequences if improvement doesn’t occur.

From a business perspective, this also helps you answer the question: “Did we do everything we reasonably could before ending employment?” That’s valuable in almost any dispute context.

4) Be Careful With Notice, Final Pay, And “Paying Out” Notice

When you terminate employment, getting the exit payments wrong can trigger disputes quickly.

You may decide to ask the employee to finish immediately and pay out their notice instead. That approach can be lawful, but it must be handled correctly under the contract and workplace laws. Payment in lieu of notice is common, but you should still check:

• what the contract says you can do;
• whether any award/EA terms apply (if relevant);
• how to treat accrued leave; and
• whether there are bonus/commission implications.

5) If It’s A Role Redundancy, Treat It Like A Real Redundancy

Sometimes the real issue isn’t an employee’s performance - it’s that the role is no longer required, or the business is restructuring.

If that’s the case, you need to treat it as a redundancy process (including consultation obligations where applicable), not “performance management by another name”. Mischaracterising the reason can increase legal risk significantly.

If you’re navigating a restructure, redundancy advice early can help you avoid the common pitfalls (like failing to consult, or failing to consider redeployment).

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When The High Income Threshold Doesn’t Apply (And What To Do Instead)

The unfair dismissal high income threshold won’t help you if:

• the employee is covered by a modern award or enterprise agreement; or
• their earnings are below the threshold; or
• you’re unsure and can’t confidently establish their position before terminating.

In these cases, the most important thing is to shift your mindset away from “Can they claim?” and towards “How do we run a defensible process?”

A Simple “Defensible Process” Checklist

Every workplace is different, but as a general guide, a defensible termination process usually includes:

• Clear reasons (performance, conduct, redundancy, capacity, etc.) supported by evidence;
• Procedural fairness (giving the employee a chance to respond);
• Consistency (similar issues handled in similar ways);
• Accurate entitlements (notice, leave, final pay); and
• Careful wording in termination letters and meeting notes.

If you’re not confident you can tick these off, it’s often cheaper (and less disruptive) to get help before you terminate than to manage a dispute afterward. Many employers also underestimate how quickly penalties can escalate when Fair Work issues are involved - Fair Work Act penalties can be significant depending on the breach.

Don’t Forget The Human Side

Even where your legal risk is low, how you handle the exit can impact:

• team morale;
• your reputation in a small industry;
• handover quality; and
• the chance of the exit turning into a dispute.

A calm, structured process and respectful communication is often one of the best “risk controls” you can implement as an employer.

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Key Takeaways

• The unfair dismissal high income threshold can affect whether an employee is eligible to bring an unfair dismissal claim, but it only applies in specific situations (particularly where there is no award or enterprise agreement coverage).
• Award or enterprise agreement coverage is often the deciding factor, so don’t assume a high salary automatically means the employee is excluded from unfair dismissal.
• Even if the high income threshold applies, other legal risks can still arise (such as general protections, discrimination, or breach of contract claims).
• The safest approach is to run a defensible process anyway: clear reasons, procedural fairness, proper documentation, and correct final pay/notice.
• Strong foundations like a well-drafted Employment Contract and clear processes (including show cause steps where appropriate) make termination decisions easier to manage.
• If you’re unsure whether the threshold applies, or you’re dealing with a sensitive termination (performance, misconduct, or redundancy), getting advice early usually saves time, cost, and stress.

If you’d like help managing a termination risk assessment or planning a compliant exit process, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.