More Employees Now Covered by Unfair Dismissal: What SME Employers Need to Know

As of 1 July, the high-income threshold for unfair dismissal claims has increased from $175,000 to $183,100. The compensation cap is also rising  from $87,500 to $91,550.

At first glance, these may seem like figures only relevant to big corporations or legal teams. But for small and medium businesses, these changes have very real implications –  especially for payroll professionals, HR managers, and executive decision-makers.

What Is the High-Income Threshold?

Set by the Fair Work Commission and updated annually under Fair Work Regulations, this threshold is tied to average weekly ordinary time earnings, as reported by the ABS.

In practical terms, the threshold determines:

• Whether an employee can bring an unfair dismissal claim (if not covered by an award or enterprise agreement)
  
• The maximum compensation they can be awarded if a claim is successful

Why This Matters to SMEs

You might assume that only large employers need to worry about executive pay and employment law compliance –  but that’s outdated thinking.

Here’s what SMEs must understand:

• More employees are now covered: As the threshold rises faster than many salaries, senior staff once excluded from unfair dismissal protections may now qualify.
• Award and agreement coverage still applies: Even if an employee earns over the threshold, they may still be eligible for protection if they’re covered by a modern award or enterprise agreement.
• Legal risk is expanding: Employers need to be aware of eligibility creep – where senior roles, particularly in fast-growing or lean organisations, drift into this protected zone without notice.

What Should Payroll and HR Do?

This isn’t just a minor compliance update – it’s a call to action.

Here’s how SMEs should respond:

1. Update Payroll Systems

Ensure the new threshold of $183,100 and compensation cap of $91,550 are reflected in your systems. This matters for:

• • Reporting executive remuneration
  • Risk assessment during terminations
  • HR analytics and benchmarking

2. Review Employment Contracts

Assess whether:

• Contractual references to the high-income threshold need updating
• Executive roles previously exempt from unfair dismissal now fall within scope

3. Revise Off-boarding Processes

Make sure exit checklists, termination protocols, and legal reviews factor in new eligibility. A hasty termination without awareness of the new cap can expose your business to avoidable legal action.

4. Evaluate Risk Management

Revisit your governance around:

• • Delegations and approvals for termination decisions
    
  • HR team training on unfair dismissal risks
  • Compliance documentation and audit readiness

Non-Compete Clause Reform Is Coming Too

This threshold also ties into broader industrial relations reform. The Albanese government has proposed restricting non-compete clauses for employees earning under the high-income threshold.

That means:

• Employees earning less than $183,100 may soon be protected from post-employment restrictions
  
• The way you structure senior contracts and enforce IP or restraint clauses may need to change

The Bottom Line for SMEs

This change isn’t just about a number going up – it’s about managing risk, protecting your business, and treating employees fairly in a more regulated, more visible environment.

Don’t ‘set and forget. Use this update as a trigger to review your payroll governance, contracts, and compliance frameworks.

Because the cost of getting it wrong isn’t just financial – it’s reputational and operational, too.