Unfair Dismissal Salary Threshold in Australia

Ending employment is never easy, and it’s an area where a misstep can quickly turn into time-consuming and costly disputes.

One concept that often confuses employers is the unfair dismissal salary threshold. It’s a key factor in whether an employee can bring an unfair dismissal application to the Fair Work Commission (FWC) - and it interacts with modern awards and enterprise agreements in ways that can catch businesses off guard.

In this guide, we’ll break down how the threshold works, who’s covered (and who isn’t), and practical steps to reduce your risk if you need to terminate employment. We’ll keep things in plain English and focus on what a small business owner needs to know to stay compliant and confident.

What Is The Unfair Dismissal Salary Threshold?

Under the Fair Work Act 2009 (Cth), an employee can usually bring an unfair dismissal claim if their dismissal was “harsh, unjust or unreasonable.” However, not everyone is eligible. One of the jurisdictional filters is the “high income threshold.”

Here’s the key point for employers: if an employee is not covered by a modern award or enterprise agreement and their “earnings” are above the high income threshold, they cannot make an unfair dismissal application. The threshold amount is indexed and changes on 1 July each year. The FWC publishes the current figure annually.

If an employee is covered by a modern award or an enterprise agreement, the threshold doesn’t apply - award/EA coverage gives them access to the unfair dismissal regime regardless of their income.

Separately, note that there’s also a compensation cap for unfair dismissal awards. If a claim proceeds and is successful, compensation is capped by reference to the employee’s remuneration and a statutory maximum. This cap is different to the eligibility threshold, but both are updated each year on 1 July.

Who Is Eligible To Make An Unfair Dismissal Claim?

To understand how the threshold works in practice, it helps to zoom out and look at the basic eligibility rules for unfair dismissal. An employee generally needs to satisfy all of the following:

• They were dismissed (i.e. not a genuine resignation) and the claim is filed within 21 days of dismissal.
• They have served the minimum employment period (usually 6 months, or 12 months if you’re a small business with fewer than 15 employees).
• They are covered by a modern award or enterprise agreement, or if not covered, they earn less than the high income threshold.
• They are not excluded for other reasons (for example, they were a contractor rather than an employee, or the dismissal was a genuine redundancy).

Whether the dismissal was “harsh, unjust or unreasonable” is assessed under factors in the Fair Work Act - for example whether there was a valid reason, whether the employee was told the reason and given a chance to respond, and whether there was procedural fairness. You can read more about these factors in our guide on section 387 of the Fair Work Act.

A few common eligibility nuances for employers to keep in mind:

• Small Business Fair Dismissal Code. If you employ fewer than 15 employees, compliance with the Code is a defence to an unfair dismissal claim. It doesn’t affect the salary threshold, but it does change what a “fair” process looks like.
• Casual employees. Casuals can access unfair dismissal only if they were employed on a regular and systematic basis and had a reasonable expectation of continuing employment, and they still need to meet the award/EA/threshold rules above.
• Probation. Employees dismissed within the minimum employment period (often aligned with probation) generally can’t bring an unfair dismissal claim, but you should still follow a fair and documented process. Our guide to terminating during probation covers the essentials.

How Do You Work Out “Earnings” Against The Threshold?

When assessing whether an employee who isn’t award/EA-covered crosses the high income threshold, the Fair Work Act uses the concept of “earnings.” In simple terms, that’s the employee’s guaranteed remuneration from the employer.

Broadly speaking, earnings can include:

• Base salary and any amounts that are guaranteed to be paid.
• Agreed monetary amounts that are salary packaged (e.g. salary sacrifice).
• The agreed value of non-monetary benefits (for example, a car or housing) if they are provided under the terms of employment.

Some items are generally not counted in “earnings” for the threshold calculation, such as compulsory superannuation contributions and genuine expense reimbursements. Discretionary bonuses and incentive payments are only counted if they are guaranteed under the contract.

In practice, the safest approach is to look at the written Employment Contract and identify what remuneration is contractually guaranteed. If there’s a dispute about what counts, the FWC will look at the substance of the arrangement, not just the label.

Two practical tips for employers:

• Consider including clear remuneration terms in the Employment Contract, including how any non-monetary benefits are valued, so there’s less ambiguity if the threshold ever becomes relevant.
• Remember that award coverage overrides the threshold. A high-earner who is still covered by a modern award remains eligible for unfair dismissal, even if their remuneration is well above the threshold.

What Does The Threshold Mean For Your Business?

The salary threshold doesn’t give a green light to dismiss a high-income employee without process. It simply affects whether unfair dismissal is available as a remedy for non-award/EA employees. Other claims can still arise, including general protections, discrimination, breach of contract or adverse action.

Here’s how the threshold typically plays out for small businesses:

• Award/EA-covered employees: Treat as eligible for unfair dismissal regardless of pay. Follow a fair process and document each step.
• Not covered and below the threshold: Treat as eligible. A robust process and good records are essential.
• Not covered and above the threshold: Unfair dismissal may not be available, but you should still use a fair and reasonable process to manage risk of other claims and maintain workplace trust.

If the dismissal is for genuine redundancy, unfair dismissal won’t apply provided you comply with any consultation obligations and consider reasonable redeployment options. If you’re navigating workforce changes, it’s wise to get redundancy advice early.

Managing Dismissals Lawfully: A Practical Employer Checklist

No matter the employee’s earnings, adopting a fair and consistent process is the best risk management strategy. Below is a simple, employer-friendly roadmap you can adapt to your business.

1) Check Coverage, Threshold And Service

• Is the employee covered by a modern award or enterprise agreement? If yes, treat as eligible for unfair dismissal.
• If not covered, assess the employee’s “earnings” against the current threshold. If below the threshold, treat as eligible.
• Confirm the minimum employment period (6 months; or 12 months for businesses with fewer than 15 employees). Don’t rely on the threshold alone.

2) Identify The Right Pathway (Performance, Misconduct Or Redundancy)

• Performance or capacity issues: Consider support, targets and a reasonable timeframe for improvement. Provide written feedback and opportunities to respond.
• Misconduct allegations: Investigate promptly and fairly. Consider a neutral precaution such as standing down pending investigation where warranted. Keep records of meetings and evidence.
• Redundancy: Ensure the role is no longer required due to operational changes, consult where required, and consider redeployment options in your business (and associated entities, if any).

3) Follow Procedural Fairness

• Set out concerns in writing and invite a response (consider a formal show cause letter for serious matters).
• Allow a support person if requested.
• Make your decision after considering the employee’s response, then confirm the outcome in writing with reasons.

4) Apply The Correct Notice (Or Pay In Lieu)

• Check the contract, award/EA and the National Employment Standards for notice periods and any accrued entitlements.
• If you choose to pay out notice, ensure the amount aligns with payment in lieu of notice rules and your contract terms.
• Be careful with set-offs and deductions - these must be legally permitted and documented.

5) Finalise Properly And Keep Records

• Provide a termination letter that clearly explains the decision and the final pay breakdown.
• Secure company property and access. Consider whether garden leave is appropriate in senior roles to protect clients and confidential information.
• Keep a complete file. If an application is made, your contemporaneous documents will be critical.

6) Review Your Contracts And Policies

• Ensure your Employment Contracts support your processes (e.g. remuneration clarity, duties, confidentiality, post-employment restraints where appropriate).
• Train managers to follow a consistent process aligned with your policies and the Fair Work Act criteria outlined in section 387.
• Use probation well. If the role isn’t the right fit, our guidance on termination during probation can help you manage that period lawfully.

Employer FAQs: Threshold Scenarios You’ll Likely See

Does award coverage trump the salary threshold?

Yes. If an employee is covered by a modern award or enterprise agreement, they can access unfair dismissal regardless of their income. The threshold only filters out employees who are not covered by an award/EA.

Do bonuses count towards the threshold?

Only guaranteed bonuses or incentives in the contract are usually counted as “earnings” for the threshold. Discretionary bonuses typically are not. The FWC will look at substance over labels - if a “bonus” is guaranteed, it may be treated as part of earnings.

What about superannuation and reimbursements?

Compulsory super is generally excluded from the earnings calculation. Genuine reimbursements of expenses are also excluded. Non-monetary benefits that form part of the remuneration package are usually included at their agreed value.

We’re a small business. Does the Code replace the need for process?

The Small Business Fair Dismissal Code gives additional protection if you follow it, but you still need a fair and reasonable process. Put concerns in writing, let the employee respond, and keep records. If dismissal is for serious misconduct, ensure you have reasonable grounds for that conclusion.

If an employee is above the threshold, can they still make other claims?

Yes. The threshold only affects unfair dismissal eligibility for non-award/EA employees. Other claims may still be available (e.g. general protections, discrimination, breach of contract). That’s why a fair process and clear documentation are important in all cases.

Is there a deadline for employees to file?

Yes. Unfair dismissal applications must generally be lodged within 21 days of the dismissal taking effect. This strict timeframe is another reason to ensure your process and termination letter are accurate and complete the first time.

What if we prefer an immediate exit?

You can consider paying out notice instead of having the employee work it, in line with your contract and legal obligations relating to payment in lieu of notice. For senior or customer-facing roles, you may also use garden leave provisions where appropriate.

Smart Risk Management: Policies And Documents That Help

Good paperwork won’t fix a flawed decision, but it will help you run a fair process and prove it later. As you grow, it’s worth making sure you have the right documents in place and tailored to your business.

• Employment Contract: Sets out remuneration, duties, performance expectations, notice, grounds for termination, confidentiality, and any post-employment restraints. Clear remuneration terms help with threshold questions.
• Workplace Policies: Disciplinary procedures, performance management, and conduct policies help ensure consistent treatment and give employees clarity about standards.
• Performance/Investigation Templates: Using consistent wording for invitation letters, meeting notes, outcomes and any show cause communications helps maintain procedural fairness.
• Termination Pack: A standard termination letter, final pay checklist and record-keeping folder streamlines compliance and reduces errors.

If you’re unsure which documents your business needs, our employment lawyers can help you set up a practical, compliant framework that suits your size and risk profile.

Key Takeaways

• The unfair dismissal salary threshold only limits claims for employees who are not covered by an award or enterprise agreement; award/EA coverage overrides the threshold.
• “Earnings” for the threshold focuses on guaranteed remuneration, typically excluding compulsory super and genuine reimbursements while counting agreed non-monetary benefits.
• Eligibility also depends on minimum service periods, small business rules and whether the dismissal was harsh, unjust or unreasonable, assessed under section 387.
• Even where the threshold removes unfair dismissal eligibility, other claims can still arise, so a fair and well-documented process remains essential.
• Plan dismissals carefully: choose the correct pathway (performance, misconduct or genuine redundancy), follow procedural fairness, and apply correct notice or payment in lieu.
• Strong Employment Contracts, clear policies, and consistent templates will reduce risk and help your managers implement a fair process.

If you’d like a consultation on managing unfair dismissal risk - including threshold questions, contracts and processes - you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.