How the Unfair Dismissal Salary Threshold Works in Australia

Terminating an employee's employment is one of the highest-risk moments in running a business. Before the Fair Work Commission ever reaches the question of whether a dismissal was fair, it must decide whether it is allowed to hear the claim at all. One of the first filters it applies is the high income threshold, commonly called the unfair dismissal salary threshold, and misreading it has consequences in both directions. You can end up defending a claim you assumed was out of reach, or paying a lawyer to fight a claim that should have been dismissed at the door.

The threshold does one job. It determines whether an employee who is not covered by a modern award or an enterprise agreement is protected from unfair dismissal under the Fair Work Act 2009 (Cth). This guide walks through how the mechanism actually works: where the threshold sits in the eligibility test, what counts as an employee's earnings against it, which year's figure applies, and the common traps that catch employers out. It becomes relevant whenever you dismiss a senior or well-paid employee, and whenever an application arrives and you need to know whether you can challenge it before it goes to a hearing.

Where the threshold sits in the unfair dismissal scheme

Unfair dismissal is a creature of Part 3-2 of the Fair Work Act 2009 (Cth). The process runs like this. An employee who has been dismissed lodges an application with the Fair Work Commission, normally within 21 days. The Commission then checks whether it has jurisdiction before it assesses the merits of the dismissal. The high income threshold is one of those jurisdictional filters. It says nothing about whether a dismissal was fair; it only decides whether a particular employee is allowed to bring a claim at all.

The central provision is s 382 of the Act. A person is protected from unfair dismissal only if they have completed the minimum employment period and one of three things applies:

• A modern award covers the person: if so, the threshold is irrelevant. Award coverage gives access to the unfair dismissal regime regardless of how much the employee earns.
• An enterprise agreement applies to the employment: the same result. Agreement coverage overrides the threshold.
• The person's annual rate of earnings is less than the high income threshold: this is the only limb where the threshold does any work. It applies to employees who are covered by neither a modern award nor an enterprise agreement.

The practical question for an employer is therefore two-step. First, is the employee covered by a modern award or an enterprise agreement? If yes, the threshold never comes into it. Second, if not, what do their earnings count to against the figure in force at the date of dismissal? That second step is where most of the confusion lives.

There is a separate mechanism in Part 2-9 of the Act, the guarantee of annual earnings, which employers sometimes use for senior hires who are covered by a modern award. It is technical, it interacts with award coverage, and its effect on a later dismissal claim is not always obvious, so it is worth specific advice before relying on it.

What counts as "earnings" against the threshold

The word "earnings" is a defined term in the Act, and it does not mean simply "base salary". The definition in s 332 includes three main categories:

• Wages: base salary and any other guaranteed monetary amounts.
• Amounts applied or dealt with on the employee's behalf: salary sacrifice arrangements. If an employee salary sacrifices part of their package into a car lease or additional super, the sacrificed amount still counts as earnings.
• The agreed money value of non-monetary benefits: a car or housing provided under the terms of employment, where a reasonable money value has been agreed between the employer and the employee.

The definition then excludes a list of items. The most important exclusion is payments the amount of which cannot be determined in advance. The Act's note spells this out: commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed) are not counted. The underlying idea is that the threshold is tested against what the employee is guaranteed, not what they might happen to earn. Genuine reimbursements of expenses are also excluded, as are compulsory superannuation contributions that the employer would otherwise have paid as superannuation guarantee.

In practice, the safest approach is to read the written contract and identify what remuneration is guaranteed. If there is a dispute about whether something counts, the Commission looks at the substance of the arrangement, not the label the parties used. A "bonus" that is contractually guaranteed can be treated as part of earnings; a discretionary bonus that could be withheld cannot.

The current figure, and which year's applies

The high income threshold is set by regulation and is adjusted annually on 1 July. The Fair Work Commission publishes the current figure, and the relevant figure for any claim is the one in force when the dismissal took effect, not the figure in force when the application is lodged or when you are reading this.

So a dismissal that takes effect on or after 1 July 2026 is tested against $190,100. A dismissal in the 2025-26 financial year was tested against $183,100. The difference matters: an employee earning $185,000 who was dismissed in June 2026 could not claim, but the same employee dismissed in July 2026 is below the new threshold and can.

A separate but related number is the compensation cap. If an unfair dismissal claim succeeds, compensation is capped at the lesser of the employee's remuneration over the 26 weeks before the dismissal and half the high income threshold in force at the time of the dismissal, under s 392 of the Act. Half of the current threshold is $95,050. The cap is a ceiling on awards, not an entitlement, and it applies regardless of whether the employee was award covered. It is easy to confuse the cap with the eligibility threshold because both move each 1 July, but they do different jobs.

The other hurdles a claim must clear

Being below the threshold (or award covered) does not by itself let an employee claim. The rest of the eligibility chain has to line up as well:

• The person must have been dismissed: a genuine resignation is not a dismissal for these purposes.
• The application must be in on time: section 394 of the Act requires an application within 21 days after the dismissal takes effect. The Commission can extend that period only for exceptional circumstances, so the 21-day clock is a real barrier in most cases.
• The minimum employment period must be served: under s 383, that is 6 months for most employers, but 12 months where the employer is a small business employer. A small business employer is one with fewer than 15 employees at the relevant time, with associated entities counted as one business and regular casuals counted in the headcount, under s 23 of the Act.
• Casual service only counts in limited circumstances: under s 384, a casual's period of service counts toward the minimum employment period only if the employment was as a regular casual employee with a reasonable expectation of continuing employment on a regular and systematic basis.
• The dismissal must not be a genuine redundancy: under s 389, a dismissal is a genuine redundancy when the job is no longer required to be performed by anyone because of changes in the operational requirements of the enterprise, and any award or agreement consultation obligations have been complied with. It is not a genuine redundancy if it would have been reasonable to redeploy the person within the enterprise or an associated entity.
• Small business employers have the Code: if the dismissal was consistent with the Small Business Fair Dismissal Code, the employee cannot succeed, per s 385 of the Act. The Code is a defence available to employers with fewer than 15 employees; it does not replace the need for a reasonable process, but it changes what "reasonable" looks like.

Only after all of those filters is the Commission asked whether the dismissal was harsh, unjust or unreasonable. That assessment runs through the criteria in s 387: whether there was a valid reason related to capacity or conduct, whether the employee was notified of the reason and given an opportunity to respond, whether a support person was unreasonably refused, whether warnings were given in performance cases, and the size and HR resources of the employer's enterprise.

Where employers get caught out

The threshold looks simple, but it produces a string of familiar mistakes:

• Assuming high pay means no claim: the most common error. If the employee is covered by a modern award or enterprise agreement, they can claim no matter how much they earn. Many award-covered roles pay well above $190,100, and their occupants remain fully protected.
• Understating earnings: forgetting that salary sacrifice and the agreed value of a company car or housing count toward earnings can leave you arguing about the figure in a jurisdictional hearing you could have avoided. Equally, counting a discretionary bonus as guaranteed earnings can make you wrongly assume an employee is above the threshold.
• Using the wrong year's figure: the threshold that applies is the one in force when the dismissal takes effect. Around each 1 July, the figure changes, and relying on last year's number can be wrong in either direction.
• Treating the threshold as permission to skip process: an employee above the threshold may be shut out of unfair dismissal, but they are not shut out of other claims. General protections claims (including adverse action), discrimination claims and breach of contract claims can all still be brought, with their own tests and time limits. A fair, documented process protects you against those too.
• Confusing the cap with the threshold: the compensation cap of half the threshold applies to claims that get through. It does not give an above-threshold employee a claim, and it does not let an employer below-threshold employee off a claim.

When a lawyer helps

The threshold is raised as a jurisdictional objection, and the Commission usually decides it as a preliminary issue before the merits are examined. That makes it a point where early, accurate assessment saves real money. A lawyer can help at each stage:

• Before the dismissal: mapping whether the employee is award or agreement covered, working out what their earnings count to against the current figure, and advising on the process that matches the situation, including the Small Business Fair Dismissal Code for smaller employers.
• When a claim arrives: assessing the jurisdictional arguments available to you, including the threshold, the minimum employment period, casual service issues and the 21-day deadline, and preparing the response that gets the claim dismissed at the threshold rather than fought on the merits.
• When documents are being set up: reviewing contracts so remuneration terms, including any non-monetary benefits, are clear enough that an earnings dispute never arises, and advising on the guarantee of annual earnings mechanism for senior hires.

The cost of getting the assessment wrong is an unfair dismissal application that runs to a hearing, with compensation exposure up to 26 weeks' pay and the possibility of reinstatement. A short consultation to confirm coverage and earnings against the current figure is a fraction of that cost.

The coverage and earnings assessment before dismissal

The risk in this area concentrates at one moment: the decision you make about an employee before the termination letter goes out. The threshold only ever helps you if you know two things with certainty, namely whether the employee is covered by a modern award or enterprise agreement, and what their guaranteed earnings count to against the figure in force on the date of dismissal. Both can be checked in an afternoon with the contract in front of you, and both are exactly what a lawyer will verify for you in a consultation before you commit to a course of action. Getting that assessment right at the start keeps you out of a jurisdictional hearing entirely, and it is the difference between a dismissal that ends the matter and one that starts a second conversation with the Commission.