Highly Compensated Employee in Australia: 2025 Rules & Impacts

In the world of workplace policy, remuneration, and tax, the term ‘highly compensated employee’ is cropping up more than ever in Australia. As we move into 2025, both employers and high-income earners need to keep pace with evolving definitions, compliance requirements, and the knock-on effects for superannuation and workplace benefits. Let’s break down what it means to be a highly compensated employee in Australia today—and why it matters for your pay packet, your tax bill, and your future plans.

What Qualifies as a Highly Compensated Employee in 2025?

While Australia doesn’t have a rigid legal threshold like the US IRS’s annual dollar figure, the concept of a ‘highly compensated employee’ (HCE) is increasingly referenced in policy and HR circles. In practice, it often relates to:

• Executive remuneration packages

• Top-tier professionals in banking, tech, law, and consulting

• Employees with access to significant bonuses or equity incentives

For compliance and reporting purposes, many organisations use the Fair Work Commission’s high-income threshold as a benchmark. As of 1 July 2024, this threshold is set at $175,000 per year (exclusive of superannuation). This figure is reviewed annually and is likely to rise again in 2025.

Other government policies, such as the Australian Prudential Regulation Authority (APRA) requirements for the banking sector, may set their own thresholds for what constitutes ‘highly compensated’. For example, APRA’s Prudential Standard CPS 511 focuses on risk management and remuneration for executives and material risk-takers.

Tax and Superannuation Implications for HCEs

For Australia’s top earners, crossing the highly compensated threshold can trigger different tax and super rules:

• Division 293 Tax: If your income and super contributions exceed $250,000 in a financial year, you’ll pay an extra 15% tax on some or all of your concessional (pre-tax) super contributions. This is on top of the standard 15% contributions tax.

• Superannuation Caps: HCEs need to be mindful of annual concessional (pre-tax) and non-concessional (after-tax) contribution caps, which for 2024-25 are $30,000 and $120,000 respectively. Exceeding these limits leads to extra tax penalties.

• Fringe Benefits Tax (FBT): Generous non-cash benefits (like car allowances, shares, or subsidised loans) are subject to FBT, and the rules become more complex as total compensation rises.

• PAYG Withholding: Large bonuses, vesting shares, or redundancy payments for HCEs can create sizable withholding obligations and affect end-of-year tax positions.

Recent ATO audits have zeroed in on high-income earners’ super arrangements, with a focus on salary sacrifice and compliance with contribution caps. In 2025, expect increased digital scrutiny as the ATO harnesses AI for real-time payroll monitoring.

Workplace Rights and Risks for HCEs

Being a highly compensated employee brings perks—but also unique risks:

• Unfair Dismissal Exclusion: Employees earning above the high-income threshold (currently $175,000) and not covered by an award or enterprise agreement are generally excluded from making unfair dismissal claims under the Fair Work Act. This means less job security in some high-paying roles.

• Performance-Linked Pay: HCEs are more likely to have a significant portion of their remuneration at risk—tied to KPIs, shareholder returns, or long-term incentives. A downturn in company performance can have a dramatic impact on take-home pay.

• Non-Compete and Post-Employment Restrictions: Employers may impose stricter non-compete, non-solicitation, or confidentiality clauses in contracts for HCEs, reflecting the value and risk associated with these roles.

Case in point: In 2024, several ASX-listed companies reviewed their executive pay structures in response to new ‘clawback’ provisions and shareholder activism, demonstrating the high public and regulatory scrutiny applied to Australia’s best-paid employees.

Planning Strategies for High-Income Earners in 2025

If you’re approaching, or already over, the highly compensated threshold, it pays to be proactive. Here are some smart moves for 2025:

• Review Salary Packaging: Maximise after-tax income by structuring remuneration to take advantage of concessional tax treatments—within the rules.

• Track Super Contributions: Monitor both employer and personal contributions to avoid breaching caps, especially if you have multiple jobs or salary sacrifice arrangements.

• Understand Your Employment Contract: Pay close attention to clauses around termination, bonuses, equity vesting, and post-employment restrictions. Seek professional review if moving into a new high-paying role.

• Stay Informed: Monitor ATO updates and Fair Work changes, as 2025 is expected to bring further tweaks to thresholds and reporting requirements for high earners.

The Bottom Line

In Australia’s dynamic employment landscape, the label ‘highly compensated employee’ comes with both benefits and obligations. From extra tax on super to complex workplace rights, high-income earners face unique financial and career considerations. Staying informed—and acting early—can help you make the most of your position while avoiding costly pitfalls.