Bonuses and Allowances Do Not Count as Wages

By Freehills

In Lee Haywood v Repco Ltd (No. B1386 of 2004), the QIRC has found that car allowances and bonuses paid are not wages for the purposes of determining an employee's eligibility to make an unfair contract claim. The decision of Commissioner Brown was handed down on 19 January 2005. Currently, an employee must earn wages of less than $90,400 per annum before the QIRC has jurisdiction to hear an unfair contract claim.

Facts

Mr Haywood was a former employee of Repco Ltd (Repco) who commenced an action for unfair contract. Repco challenged the QIRC's jurisdiction to hear the claim on the basis that Mr Haywood earned more than the $85,400 per annum, the amount prescribed under the Industrial Relations Regulation 2000 (Qld) at the relevant time. In his final year of employment with Repco, Mr Haywood had been paid:
  • a salary of $80,000

  • a bonus of $14,000, and

  • car lease payments of $17,500 (to a leasing company on his behalf).
The QIRC was required to decide whether the bonus paid and the value of the lease should be included as part of Mr Haywood's 'annual wage' for the purposes of determining his eligibility to make an unfair contract claim.

Decision

The QIRC concluded that the bonus paid could not rightly be considered part of Mr Haywood's annual wage because it was uncertain in nature. Commissioner Brown reasoned that while the bonus system was in agreed and enforceable terms, there was no way of determining what bonus would be paid to Mr Haywood in future years if his employment had continued. This was because the bonus was contingent on Mr Haywood reaching certain monthly targets. The evidence demonstrated that the bonus had not been paid when the monthly targets were not reached. As Mr Haywood had no entitlement to a definite sum of money, the bonus could not be considered 'wages'.

On the facts, the QIRC also concluded that the car lease valued at $17,500 was not part of Mr Haywood's wage. This was because the money was not paid directly to him in the form of a car allowance that could then be spent at Mr Haywood's discretion, but rather was paid directly to the leasing company to satisfy Mr Haywood's novated lease. Commissioner Brown noted the outcome may have been different if Mr Haywood had an enforceable right to revert to receiving the payment of the car allowance as an alternative to the lease arrangement. The arrangement, as existed, amounted to a benefit Mr Haywood received, but it could not properly be characterised as wages.

Implications for employers

The decision indicates that the existence of a salary packaging arrangement or flexible remuneration may not preclude an employee from seeking remedies under the unfair contract jurisdiction even if the value of the benefits received as a whole exceeds the statutory limit. The QIRC also makes it clear, however, that the decision in relation to the car leasing arrangement turned on the facts of this particular case. It is possible that car allowance arrangements could be interpreted by the QIRC in future cases as constituting part of an employee's annual wage.

A brief note on the AIRC's position

The Australian Industrial Relations Commission (AIRC) has also recently addressed the issue of whether novated leases and bonuses form part of an employee's remuneration in the unfair dismissal (as opposed to unfair contract) context. Employees are not able to bring a claim for unfair contract under the Workplace Relations Act 1996 (Cth) (WR Act).

Novated leases have been treated slightly differently by the AIRC. This can be explained by the reference in the WR Act to 'remuneration' rather than 'annual wage' as in the Queensland legislation when determining the threshold for jurisdiction. In the decision in Rofin Australia Pty Ltd v Newton, a Full Bench of the AIRC concluded that the concept of remuneration is wider than a wage or salary and includes non-pecuniary benefits and payments made on behalf of an employee to a creditor out of moneys otherwise due to the employee. Commissioner Eames followed this interpretation in Cox v Steven Hallis Personnel Services P/L, handed down on 13 April 2004, and concluded that a novated lease forming part of a genuine salary sacrifice arrangement is a component of an employee's remuneration.

In its decision in BMS Entertainment v Sawiris, handed down on 18 November 2004, a Full Bench found that a bonus payment that an employer had no contractual or other legal obligation to pay (and had in fact not paid) to an employee could not be considered part of the employee's remuneration. The Full Bench did not, however, rule on the issue dealt with by the QIRC—being whether the payment of a bonus could be taken into account in determining the relevant monetary threshold for jurisdictional purposes.


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