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Variable Earnings Income
Last amended: 27 August 2008
Variable earnings include:
- regular employment with fluctuating hours,
- regular employment that is not ongoing but does not have a clearly defined end date,
- regular employment with fluctuating overtime or commissions,
- intermittent earnings where work stops and starts but employment continues,
- contract work, where payments are more variable or where more than one contractual agreement might occur in a year, and
- seasonal work, such as fruit picking, where there may be several relatively short periods of work in a year.
The common element in these cases is that income is not earned at a constant or clearly recognisable rate.
Annual rate of variable earnings
Where income is not earned at a constant or clearly recognisable rate, and the delegate is satisfied that employment is continuing, it is acceptable to average the variable earnings over a specific period (which may include breaks in employment), to obtain the annual income rate to be held over that period.
Variable earnings cases are usually subject to specific review arrangements (commonly of 13 weeks), because the averaging of the changing income amounts over a given period provides a reasonable reflection of the current rate of income, and therefore of the annual rate.
The selected review period should be of a duration best suited to the pattern of employment. A 12 or 14 week period may be preferred to 13 weeks, where earnings are paid fortnightly. The assessment process begins at the start of the review period with an estimate of earnings, based on available evidence. At the end of the review period the availability of payslips and other supporting documentation will allow the correct rate of earnings to be established. The previously held rate is then adjusted, with the payment of arrears or recovery of overpayments as appropriate.
Variable earnings – examples
- A pensioner is asked to estimate earnings based on a weekly or fortnightly pay period. An assumed rate of earnings of $200 per fortnight is set using this estimate, and is held for 13 weeks. Over the review period the person receives eight weekly pays totalling $790.00. The other five weeks are periods of unemployment dispersed throughout the total 13 weeks.
In this example, the confirmed earnings rate of $121.52 per fortnight replaces the held assumed rate of $200 per fortnight. As earnings have fallen, a favourable determination is required with the date of effect being determined under section 56G(3) VEA. The available discretion in this date of effect rule, to allow a backdated increase to the start of the initial review period, must be applied in all such cases as the assumed rate of annual income initially held has now been shown to be invalid. The confirmed rate of $121.52 is then held (subject to any further changes notified by the pensioner) as the assumed rate for the next 13 weeks.
- A pensioner in the same initial situation receives variable earnings of $1,650 over the review period.
$1,650 ? 13 = $126.92 per week or $253.84 per fortnight.
The confirmed earnings rate of $253.84 replaces the assumed held rate of $200. As the confirmed earnings exceed the assumed amount, an adverse pension reassessment is required. Provided the pensioner has complied with their notification requirements, the date of effect for the adverse determination will be the date that the amending determination is made (or a later date, as specified).
The date of effect of the adverse determination will only be backdated to the start of the initial review period where it is found that the pensioner failed to comply with their notification obligations. A finding of non-compliance or otherwise will be based on the nature of the advice provided to the pensioner at the start of the review period, regarding the specified events or changes in circumstances that must still be notified during the review period.
Multiple short periods of employment
Where there are repeated short periods of employment separated by long periods of unemployment, it may be more appropriate to treat each employment period as resulting in one-off earnings, rather than by averaging the earnings over a review period.
A three-month rule generally applies in these circumstances. Short periods of employment separated by periods of non-earnings of less than three months should continue to be treated as variable earnings, with all earnings amounts being totalled and then averaged over the agreed review period to arrive at the annual rate.
Where a further earnings event falls more than three months after an earlier period of employment, it should be regarded as a separate period of one-off earnings and should be assessed independently of the earlier period of earnings. This approach is adopted because the longer passage of time is regarded as breaking any connection with the earlier period of earnings. The further earnings arise out of a new event, requiring that a fresh assessment of the annual rate of income be made.
Basis for three month rule
Applying a three-month rule to distinguish one-off periods of employment from other employment accords with the current practice of generally applying a 13 week review period to variable earnings. In 'Harris' the High Court accepted that it may be appropriate in some cases to treat intermittent work as providing a continuing source of income, and to take an average of earnings over a period. In other cases the High Court accepted that it may be appropriate to treat each period of employment as a separate source of income, yielding a particular amount of earnings. The High Court recognised that it is the circumstances of each earnings case which shows which of the alternative treatments is to be preferred.
Obligations and date of effect
The same notification obligations and date of effect rules apply to cases of variable earnings as apply to regular earnings. Where a specific review period is agreed, the pensioner's obligations may have been modified to exclude the requirement that minimal or inconsequential increases in earnings be notified within the usual 14 day period. The pensioner is still obliged to advise of earnings events or changes that fall outside the agreed arrangements, as notified to the pensioner.
Notified earnings changes during the review period will prompt an immediate reassessment. Where the review is not undertaken until the end of the review period, this is an administrative arrangement initiated by the Department and the appropriate date of effect rules outlined in the Regular Earnings section are applied.
According to section 5H of the VEA income is:
- an amount earned, derived or received by a person for the person's own use or benefit;
- a periodical payment by way of gift or allowance; or
- a periodical benefit by way of gift or allowance.
A specific review is an event-based, department-initiated review, based on anticipated or known changes to a pensioner's personal or financial circumstances, likely to impact on the rate of pension.
- earnings review
- review of circumstances following notification of a changed address
- post-bereavement review
The date of effect, or effective date, is the day on which a certain incident or 'event' begins affecting a pension assessment.