C19/2004 Assessment of Income from Employment (Earnings) - Revised Departmental Policy | Compensation and Support Reference Library, Departmental Instructions, 2004

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C19/2004 Assessment of Income from Employment (Earnings) - Revised Departmental Policy

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DATE OF ISSUE:  22 July 2004

Assessment of Income from Employment (Earnings) - Revised Departmental Policy

Please Note: This Departmental Instruction C19/2004 is now suspended by DI C14/2006 – Income from Employment (Earnings) Revised CLIK Policy issued on 28 June 2006

To:

cc:

Income Support Managers (all States)

Stateline circulation list

Purpose of Instruction

This Departmental Instruction is to inform Income Support staff of the revised policy applying to the assessment of employment-related income (earnings), when determining pension entitlements.

Date of Effect

This Instruction is effective from the date of issue, stated above.

The existing policy statement relating to earnings (Departmental Instruction C24/99 issued on 22 July 1999) is now cancelled.

CLIK amendments

The revised earnings policy in this Instruction will shortly be transferred to the CLIK Policy Library, at Part 10, Chapter 1, Section 4 (Income from Employment).

Policy review

It is intended that a review of the revised policy will be undertaken after a period of 12 months, to take into consideration State Office experience and practice with the amended procedures.

Continued on next page

Contact person

The contact person for general enquiries relating to this Instruction is

Brian Butler, Income Support Policy Section, on 02 6289 6110.

Queries regarding the application of the revised earnings policy to specific earnings situations should continue to be forwarded by e-mail to the Income Support Policy Section, at NAT Policy Advisings Income Support.

Jeanette Ricketts

Branch Head

INCOME SUPPORT

22 July 2004


Contents

Introduction

Purpose of Revised Earnings Policy5

Background5

Legislative basis for the Income Test5

Overview of Earnings

Definition of Earnings6

Gross earnings are assessed; allowances are exempt6

Salary sacrifice6

Purchased leave7

Annual rate required7

Estimates of Earnings7

Regard for Circumstances8

Earnings Types8

Income Rate vs Income Amount

Difference between income rate and income amount9

High Court decision on annual rate – requirement to review9

Factors to consider10

Required actions10

Date of Effect

Date of Effect11

Section 54 cases – obligation to notify changes11

Departmentally initiated reviews (DIRs)12

DIRs allow for retrospective date of effect for pension increases12

Requirements for retrospective pension increases13

Retrospective pension decreases are generally not allowed13

Cases which may be considered DIRs14

Earnings Categories

Earnings Types – Overview15

Regular Earnings15

Variable Earnings16

One-off Earnings16

Assessment – Regular Earnings

Annual Rate17

Regular Earnings – Example17

Obligations and date of effect17

Notified change of circumstances18

Other cases18

Assessment – Variable Earnings

Variable earnings cases vary widely19

Annual rate of variable earnings19

Variable Earnings – Example 120

Obligations and date of effect20

Alternative averaging approaches21

Variable Earnings – Example 221

Variable Earnings – Example 321

Assessment – Single Period or One-Off Employment

One-off employment may be annualised22

Where one-off employment is repeated22

Small earnings amounts23

One-off employment – examples23

Obligations and date of effect23


Assessment of Income from Employment (Earnings) -

Revised Departmental Policy

Introduction

Purpose of Revised Earnings Policy

The purpose of this Departmental Instruction is to inform Income Support staff of the revised policy applying to the assessment of employment-related income (earnings), when determining pension entitlements.

Background

The previous departmental policy on the assessment of earnings is set out in Departmental Instruction C24/99, issued on 22 July 1999.

The revisions to earnings policy outlined in this Departmental Instruction encompass a range of earnings-related policy outcomes that have occurred since the issue of DI C24/99.  Areas of uncertainty and ambiguity have also been clarified, in response to concerns and queries raised by State Offices.

The revised earnings policy in this Departmental Instruction will shortly be transferred to the CLIK Policy Library, at Part 10, Chapter 1, Section 4 (Income from Employment).  The CLIK chapter will be amended in future, as further amendments to earnings-related policy are required.

DI C24/99 is now cancelled, effective from the date of this Departmental Instruction.

Legislative basis for the Income Test

The Pension Rate Calculator at Module E (Ordinary/adjusted income test) in Schedule 6 of the Veterans' Entitlements Act 1986 forms the legislative basis for the income test.

The instructions outlined within the Method Statement to this Module provide that the first step in applying the income test is to “Work out the annual rate of the person's ordinary/adjusted income”.

The income test requirement is, therefore, a matter of factually determining, at any given time, the annual rate of a pensioner's income.  Once the annual rate of income is determined, it should be held in the pension assessment only until such time as it is no longer appropriate (due to income changes) to do so.

The methods of determining an annual rate of income, as opposed to the calculation of an annual amount of income, are discussed below (see the heading Income Rate vs Income Amount).

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Overview of Earnings

Definition of  Earnings

Income from employment, or earnings, falls within the definition of income at section 5H of the VEA.  Any income or income amount (which includes valuable consideration, as well as money) which is earned, derived or received from employment for a person's own use or benefit is to be assessed as income.  This definition means that earnings do not need to be derived or earned at the same time that they are received.

Gross earnings are assessed; allowances are exempt

Income from employment is assessed as the gross amount of income earned.  This income includes wages, commissions, salary sacrifice amounts (see below) and other valuable consideration, before tax.  However, allowances paid to meet genuine work-related expenses are excluded from the income assessment, as they are intended to meet incurred costs and are therefore not available for the use or benefit of the person.

Allowances provided by employers for work-related expenses such as travelling requirements during working hours, clothing (such as maintaining a uniform) and meals should therefore be excluded, but only where satisfactory evidence of the allowance amounts is available through earnings records, or otherwise available from an employer or provided by the veteran.

Where expense allowance amounts are paid in excess of actual expenses incurred, the excess amounts will be available for the person's own use or benefit, and as a result they should continue to be assessed as income.  Equally, expenses incurred in excess of the paid allowance amount may be exempted from the earnings amount but only where there is satisfactory evidence that the allowance is insufficient to meet all incurred expenses.

Salary sacrifice

Salary amounts which employees “sacrifice” in favour of other benefits, such as additional superannuation, vehicles, accommodation, and other conditions, are not exempt from assessment as income.  Sacrificed amounts satisfy the VEA definition of income, being amounts earned, derived or received for the person's own use or benefit.  In some instances, such as with superannuation, the sacrificed amounts may not be received for several years.  Nevertheless, as they are earned and derived from the employment, they are assessed as income at the time they are earned.

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Purchased leave

Salary sacrifice for the purpose of purchasing additional leave is an exception to the general rule, and should not be included in the earnings assessment.  This is because salary sacrifice for the purpose of obtaining additional leave is effectively a form of leave without pay spread over a year to reduce a person's overall annual earnings.  This does not result in a deferred or alternative benefit which can be measured or valued.

Annual rate required

As required by the Pension Rate Calculator, income from earnings is always assessed as an annual rate, even if (as in many cases) that amount is necessarily an estimate.

Regular earnings reviews are required to determine whether a pensioner's employment situation has altered, and whether the held income amount should change.  The character of a pensioner's earnings-related income (primarily, its regularity, and the expectation that earnings will continue) is the key to determining the duration over which the earnings are to be held, and how frequently a review of those earnings should be conducted.  Fluctuating earnings will require more frequent reviews, so that the held rate best reflects the pensioner's actual employment income.

Estimates of Earnings

As the assessment of future earnings can only be an estimate, in most cases the determination of a pensioner's annual rate of earnings, and the duration for which those earnings are to be held, will be imprecise.  This is because some types of earnings, primarily those from casual or irregular employment, are likely to change at short notice and may require that assumptions be made about the rate at which the income is received, and the period of payment.

This policy statement aims to assist delegates in applying a methodology to the assessment of different types of earnings.  An important distinction is drawn in this policy statement between regular, variable and one-off earnings.  This distinction is made because it is important to recognise the pattern or regularity of earnings when determining an annual rate of income which is both fair to the pensioner, and which complies with the income test.

The aim, in all circumstances, is to assess both the amount and the circumstances of a pensioner's earnings, and to then calculate a rate that best reflects the pensioner's annual rate of income.  This policy statement includes example calculations from a range of earnings situations, but does not comprehensively cover all possible employment situations.  Where issues of interpretation arise, delegates should be mindful that these policy guidelines provide a framework, rather than a set of prescriptive rules, for determining an appropriate annual rate of income.

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Regard for Circumstances

At all times delegates should have regard to all the known circumstances of the pensioner's employment situation, and exercise their own judgement when determining an annual rate of income and the appropriate review period.  Court cases and AAT judgements relating to disputed income cases have repeatedly emphasised the need for delegates to be mindful of the full circumstances in which income is earned, before arriving at a determined annual rate to be held.

This policy statement also seeks to strike an appropriate balance between the legislative requirement to accurately determine an annual rate of income, with the need for assessment procedures that are both administratively practical and that do not place onerous or unnecessary reporting demands on veterans.

Earnings Types

Previous earnings policies identified a wide range of separate employment categories, including full-time, part-time, casual, irregular, contract and self-employment.  Different approaches to assessing the annual rate of income that can be derived from each employment category were then suggested.

However, there is little direct relevance or value in placing employment situations into different categories, for the purposes of determining an appropriate rate of annual income.  Consideration should instead be given to the specific known circumstances of each employment situation, including the earnings pattern and likely duration.  Categorising an employment situation into a pre-existing model may result in a standard assessment that is not appropriate for the specific circumstances of the employment.  It is also likely that some employment situations will not readily fall into a standard model, causing uncertainty as to their treatment.

While the specific category of employment is not regarded as important, this policy statement draws a distinction between regular earnings, variable earnings, and one-off earnings.  The degree of consistency of earnings is regarded as the most relevant and important consideration, when seeking to determine an annual rate of income.  While some examples of the suggested assessment for different categories of employment are given, these are for illustrative purposes and do not replace a considered judgement by the delegate of the full circumstances of the employment.

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Income Rate vs Income Amount

Difference between income rate and income amount

The assessment of an annual rate of income is not the same as assessing an annual amount of income.

An annual income amount can be readily calculated by totalling all income received over a twelve-month period, with that amount then holding for the whole year.  However, an annual income rate is determined at a particular point in time, is only held for a determined period of time, and may vary over the balance of the year.  Variability in the earnings received by a pensioner will affect the calculation of the pensioner's annual rate of income, and may require that the held income rate be reviewed several times over the year.

While termed an annual rate of income, the rate is actually determined at a fixed point in time and is held only until reviewed – which may be for a fixed period (eg for 13 weeks), or until an event occurs.  The rate is not normally held for a full calendar year or for a financial year.  The rate may however be held for a twelve-month period, from the date of assessment, in circumstances where a pensioner receives an unvarying income eg by way of standard monthly contract payments.

High Court decision on annual rate – requirement to review

The High Court of Australia (in Harris v Director-General of Social Security, 1985) defined the annual rate of income as being, at whatever time it is ascertained:

“...the total income that would be received during the ensuing year assuming current sources of income continue at the current level.”

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Factors to consider

This High Court definition reveals two significant factors, when determining a rate of income –

  •   that it is necessary to make assumptions about the continuing sources of income, when translating a current income rate into an annual rate; and

  •   that the rate will vary.  While the current held rate of income may be a good approximation of the annual rate at the time the calculation is made, it is likely to become less accurate over time.

These two factors require that assessments of income be periodically reviewed, so that the correct rate of pension remains payable.  The guiding principle at all times is that the assessment of a pensioner's current rate of income should provide the best possible reflection of the pensioner's annual rate of income.  The High Court, in acknowledging the necessity to make assumptions as to future earnings, stated that this assumption needs to be based in fact – and that it is wrong in law to assume continuing income where there is no valid reason to do this.

Required actions

Following the recalculation of the annual rate of income at the end of a review period, two required actions are supported –

  • the estimate of the earnings rate has been refreshed, and can now be held as the estimate for the following review period; and

  • the estimate of earnings made at the start of the review period can now be compared to actual earnings, and a retrospective pension adjustment made if applicable.  That is, the assumed rate of income, being an approximation only, is replaced once the client's actual earnings are verified.  This is further addressed under the following heading, Date of Effect.

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Date of Effect

Date of Effect

Care needs to be taken when determining the date of effect of a pension change as a result of changes in assessed income.  This is because income levels may vary at any time from the assumed level of income, with this change in income not always being identified, or acted on, until the end of the review period.

The date of effect rules for variation and termination of pensions are set out in sections 56 – 56H of the VEA, with –

  • sections 56, 56A and 56B establishing a date of effect rule where a pensioner complies, or does not comply, with a section 54 notice; and

  • sections 56C and 56D establishing a date of effect rule in other circumstances.

Section 54
cases –obligation to notify changes

A client may forward earnings information in compliance with a section 54 request to notify an event or change of circumstances, and as a consequence the pension may cease to be payable or be payable at a reduced rate.  In these cases the date of effect, determined under section 56, is immediately after the end of the notification period.

Where a client fails to comply with a section 54 request and the pension is cancelled or payable at a reduced rate, the date of effect is determined under section 56A or 56B and is the day on which the event or change in circumstances occurred.

Where a person has regular employment, with the annual rate of income being easily determined, a change in the notified level of earnings can be determined without delay and can be held in the pension assessment immediately.  It is not necessary, in cases of regular income, to average a level of income over a lengthy review period.  In these circumstances, the date of effect rules set out above readily apply.

For regular income earners who are reassessed annually, the date of the earnings event can be taken to be the date that the pensioner receives their payment summary or a tax return, confirming their annual income and expenses.  Where a payment summary or tax return is not available, the earnings event for date of effect purposes is the date on which the pensioner would reasonably be aware of confirmed earnings, and in a position to notify the Department.

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Departmentally initiated reviews (DIRs)

In cases of continuing but irregular employment, where an annual rate of income is monitored over a review period determined by the department (for example, over a 13-week period), the dates of effect arising from section 54 may not be appropriate.  This is primarily because the use of a date of effect determined under section 54 excludes the possibility of authorising a retrospective increase in pension, where the initial estimate of the variable earnings is later shown to be inaccurate.

In cases of variable earnings where a prolonged 13-week (or similar) review period is applied, the earnings reviews may be regarded as administrative arrangements initiated by the Department.  The aim of the review period is to average or otherwise assess income over a defined period so as to better determine the client's annual rate of income.  In these cases, retrospective adjustments of pension are frequently required, where earnings are initially overestimated.

In these circumstances, a fairer assessment of income, and of the date of effect for any change, results when the review is regarded as a departmentally initiated action – even though the review may follow the receipt of advice from the pensioner.  This alternative date of effect rule is desirable where the information provided by the pensioner may not be acted on immediately, but is held over until the end of the review period.  That is, it may be impractical to apply a date of effect based on the end of a short notice period of 14 days, where there is a prior internal arrangement to monitor earnings over a lengthy review period.

DIRs allow for retrospective date of effect for pension increases

Where income reviews at the end of a pre-determined review period are regarded as departmentally initiated, the date of effect rules are established by section 56C (for pension increases) and section 56D (for pension reductions).

In these cases the actual dates of effect are determined by section 56G and 56H, respectively, as follows –

  • For a pension increase, the date of effect can be the date the determination is made, or on a later or earlier day - as per subsection 56G(3); and

  • For pension reductions, the date of effect can be the date the determination is made, or a later day as specified in the determination - as per subsection 56H(3).

This approach, to apply the alternative date of effect rules which are available by using sections 56G and 56H, increases the discretion available to a delegate when reviewing earnings levels over a prolonged review period.  Importantly, it allows a retrospective pension increase where the estimated rate of income is not subsequently received by the pensioner during the assessment period.

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Requirements for retrospective pension increases

Retrospective pension increases (where earnings have fallen over the review period) are allowable under section 56G(3) of the VEA.  This date of effect provision allows for a pension increase to take effect from an earlier or a later date as specified in the determination.  This is provided that the change in earnings is not regarded as a notified change of circumstances.  Provided that the review of earnings at the end of a review period is regarded as a DIR, rather than a pensioner advice in compliance with section 54, retrospective increases can be authorised under section 56G(3).

There is no question that the section 54 notification requirements still apply to the pensioner.  However, when the usual notification requirements are met, but are combined with a departmentally-imposed 13-week review period, it is appropriate to deem that the change results from the departmental review, rather than solely through a notified change of circumstances, in order to permit backdating.

Retrospective pension decreases are generally not allowed

The date of effect of pension decreases, where earnings have risen over the review period, is covered by section 56H.  This section only allows a later date of effect, except in cases of fraud or misrepresentation.  This provision protects pensioners from retrospective decreases in their pension entitlement, where they have properly informed the Department of earnings changes.

Where a review period applies and a pensioner's advice regarding higher earnings is not acted upon straight away, but is held over to the end of the review period, the pension decrease cannot be backdated to the earlier date (being the end of the notification period following the earnings event).  Delegates therefore have the choice of determining the pension reduction immediately on receiving advice of an earnings increase (which effectively ends the current review period), or applying a later date of effect if the pension reassessment is still held over to the end of the review period.

It is expected that advice of an increase in earnings will generally be acted upon straight away, and that the pension decrease will date from the end of the notification period following the earnings event.  A new review period can then apply.

Earnings changes resulting in a pension decrease should therefore only be held over (not actioned) until the end of the review period in exceptional circumstances.  This may include the situation of multiple small earnings changes where there are practical reasons for not responding immediately to the advice of higher earnings.

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Cases which may be considered as DIRs

The use of the alternative date of effect rules in sections 56C and 56D, as detailed above, may be appropriate in those cases where there are fixed review periods before the rate of earnings is adjusted.  This would arise in the following circumstances –

  • where earnings are variable;
  • where there is a need to average the earnings over a review period, starting with an estimation;
  • where earnings are revised at the end of the review period based on the client's evidence of actual earnings; and
  • importantly, where the pensioner continues to meet his section 54 obligations during the review period by providing information on earnings, but where this information is held to one side until the end-of-period review.

Where all of the above conditions are met the outcome from the end-of-period review can be regarded as arising from a departmentally initiated review, with sections 56C and 56D allowing a more appropriate date of effect.

However, should a significant change in earnings occur during a review period (for example, a complete change in employment pattern), it will be necessary to immediately review the held income amount, and to apply the date of effect which would normally be determined under section 54.

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Earnings Categories

Earning Types – Overview

Having regard to the importance of the pattern or regularity of earnings, as the key factor in determining an annual rate of income, three broad categories of earnings are identified –

  • regular earnings;
  • variable earnings; and
  • singular or one-off periods of earnings.

These categories make no distinction between a person being self-employed, or working for an employer.

Regular earnings

Regular earnings include:

  • Full time employment
  • Regular part-time employment
  • Contract work which is continuing and which provides regular income

Regular earnings of this nature share the expectation that they will continue over a prolonged period, or indefinitely, without periods of unemployment or sizeable variations in earnings.  It is expected that the client with regular employment earnings will be able to provide reasonably accurate details of anticipated earnings.  For regular earnings, where the annual income is known, it is reasonable to take the known annual earnings as the income rate.

When calculating the annual rate of income for clients with regular earnings, the use of annual payment summaries is valid and useful.

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Variable earnings

Variable earnings include :

  • Regular earnings with fluctuating hours;
  • Regular earnings 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.

In these circumstances the variable income may be averaged to arrive at an annual rate - that is, an assumption is made that the current rate of earnings will continue over the balance of the year, to arrive at an annual rate of income.  As this assumption may not properly reflect the actual earnings received by the end of the year or end of review period, it is important that the held earnings amounts be regularly reviewed.

One-off earnings

Examples of singular (short-term or one-off) earnings include:

  • Contract work (short-term) where it is expected there will be only one contractual engagement in the year;
  • Census worker;
  • Christmas Santa; and
  • Three-day Royal Show worker.

These earnings are all “one-off” earnings.  They are not limited to income from employment for one day, but are not likely to be repeated in the short to medium term.

The knowledge that singular employment is limited and not to be repeated allows for these earnings to be annualised.  That is, the known income amount for the limited period of employment becomes the annual rate.  These cases also need to be reviewed regularly, as any subsequent period of employment will affect the current calculation of the annual rate of income.

In addition to regular reviews, a review should be undertaken at the end of every 12-month period.  At this time, the earnings from the one-off employment in the previous year should be disregarded in the assessment of payments for the new year.

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Assessment - Regular Earnings

Annual rate

Where there is a regular and constant rate of earnings, the current rate (whether weekly, fortnightly or monthly) is converted to an annual figure.

Regular Earnings -Example
  • Earnings of $160.00 a week equal a rate of income of $8,320         ($160 x 52).
  • If earnings increase to $170 a week the new rate of income is $8,840 ($170 x 52).

The period of assessment begins when the client first begins earning.

Evidence of current regular earnings can be used to determine an assumed level of income, to carry forward into the next review period, or year.

Obligations and date of effect

The client is obliged, under section 54, to advise of any event or change in circumstances in relation to earnings within the prescribed notice period (normally 14 days).

If the client does advise within the notification period, the date of effect for pension termination or reduction is immediately after the end of the notification period (section 56).  If the client does not advise within the notification period, the date of effect for pension termination or reduction is the day on which the event or change in circumstances occurred (sections 56A and 56B).

Where a change in earnings results in a pension rate increase under section 56C, the date of effect is determined under section 56G.  This section provides that the date of effect is:

For a notified change of circumstances – the day the advice was received or the day the change occurred, whichever is the later; and

In other cases – any day, as specified in the determination.

Similarly, the date of effect for reductions which are considered as arising from a DIR (section 56D) is determined under section 56H, and is generally the date of the determination or a later date.  (Different rules arise where a false statement or misrepresentation is the cause for the reduction).

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Notified changes of circumstances

It is expected that in most cases of regular or constant earnings, a change to the held rate of earnings will directly result from a person's notification of changes in their employment.  Where this is so, the date of effect for a notified change, being the later of the day the advice was received or the day the event occurred, applies.

Other cases

Cases may however arise where, due to the circumstances of a pensioner's regular employment, the Department has decided to review the earnings over a prolonged period.  Provided that the pensioner has properly complied with his/her obligation to notify changes within the notice period, consideration should be given to applying the alternative methods of determining a date of effect for a Departmentally Initiated Review (DIR), as detailed above.

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Assessment - Variable Earnings

Variable earnings cases vary widely

It is not feasible to provide examples of the wide variety of variable earnings situations, with instructions on how to determine an annual rate of income in each case.  All cases should be independently assessed on their individual merit, using judgement to determine the most equitable result, and bearing in mind that it is not Government policy to discourage pensioners from earning.  Consistency can still be maintained by ensuring that all similar cases are treated in the same way.

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 earnings over a period (which may include breaks in employment), to obtain an income rate.  Delegates will need to use their judgement to determine the length of a suitable review period.  The period chosen should be the time most suited to the pattern of employment.

A key element of the review will be agreement with the client.  The client should understand that the process will begin with an estimate of earnings.  After a reasonable review period, (three months is commonly applied), the availability of payslips and other supporting documentation will allow the correct rate of earnings to be established.  The previously held rate can then be adjusted, with the payment of arrears or recovery of overpayments as appropriate.

Note:  the section heading Departmentally Initiated Reviews outlines the discretion of delegates to regard internal review arrangements as DIRs, allowing an alternative method of determining the date of effect.  This approach allows for arrears to be paid, in cases where the initial assumption of earnings was too high.

As a matter of policy, delegates must consider the option of applying the favourable date of effect under a DIR arrangement, allowing a retrospective adjustment, where the initial assessment of earnings was too high.  Clients with variable earnings who are being assessed by way of a lengthy review process should be reassured that arrears, as well as recovery, will occur at the end of the review period, when actual earnings are known.

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Variable Earnings -Example 1

A client 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 for13 weeks.

Over the next 13 weeks, the client receives eight weekly pays totalling $790.00.  The other five weeks are periods of unemployment dispersed throughout the total 13 weeks.

Week 1$120.00

Week2$ 60.00

Week 3$ 80.00

Week 4 to 7$  nil

Week 8$ 50.00

Week 9$200.00

Week 10$150.00

Week 11$ 60.00

Week 12 $ 70.00

Week 13$  nil

TOTAL =$790.00

790 ?13 = $60.76 per week OR $121.52 per fortnight

In this example the confirmed earnings rate of $121.52 per fortnight replaces the held assumed rate of $200 per fortnight, and a favourable adjustment is required.  As a DIR, the date of effect is determined under section 56G and can be an earlier date than the day the determination was made, allowing a retrospective adjustment.  The confirmed rate of $121.52 is then held (subject to any further changes notified by the client) as the assumed rate for the next 13 weeks.

Obligations and date of effect

Although the Department may initiate the assessment, the client is still obliged to advise of any changes to earnings which may prompt an immediate reassessment before the end of the 13-week period.  Delegates need to decide whether the earnings information is held to one side with a view to reviewing the earnings at the end of the agreed period, or whether there has been a significant earnings change which should be acted on immediately.

Where the review is not undertaken until the end of the review period, this is an administrative arrangement initiated by the Department (a DIR) and the appropriate date of effect is applied, as outlined above.

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Alternative averaging approaches

A 13-week (three-month) period for aggregating and averaging variable earnings should provide an acceptable figure, where the pattern of earnings is likely to continue.  However, a shorter period may be more appropriate if it better reflects the pattern of earnings.  The usefulness of the 13-week review period is largely dependent on the pattern of earnings.  If this arrangement does not work, an alternative period that better estimates the client's annual rate of income should be preferred.

Variable Earnings - Example 2

An 'on call' worker advises he is commencing work next week. The client does not know what hours will be worked and so cannot give an indication of earnings.  It is necessary to decide on the most likely amount of available work, which is decided to be 3 afternoons per week for 6 hours each afternoon (18 hours), at $10.00 per hour.  This provides a maximum amount of $360 per fortnight (36hrs x 10).  The earnings rate is set using this calculation.

After 2 weeks the actual time worked over the fortnight was in fact 20 hours.  The fortnightly rate of income is recalculated at $200.  Arrears are paid for the first fortnight, and the ongoing rate is then set using $200 per fortnight, subject to further review.

If a client advises that he/she is about to cease work, it should be established whether the variable employment is likely to start again in the near future before deciding to treat the earnings as ceased, or whether to continue over short break.  It is important to try to establish a pattern of earnings in order to calculate fairly the rate of income.

Variable Earnings -Example 3

The client in the previous example provides information in the expectation that his work will continue indefinitely.  Unfortunately, the client loses his job and the earnings cease.

Some months later, the client reports that he has found employment similar to the variable work previously carried out.  In this case the process formerly adopted will be reinstated from the date the client begins earning.  The earnings will not be averaged over the period the client was not working.

Where there are multiple short periods of employment separated by long periods of unemployment it may be more appropriate to treat each employment period and the consequent earnings separately, rather than by averaging each period over the year.

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Assessment - Single Period or One-Off Employment

One-off employment may be annualised

Pension entitlements are calculated with reference to an annual rate of income.  In circumstances of one-off or very short-term periods of employment, the amount earned MAY be taken to be the annual rate.  This is because the finding that the employment is one-off means that it is not likely to be repeated in the short to medium term, and that further earnings over the course of the year are not expected.

Delegates may use their discretion to annualise short-term periods of irregular or casual income over the entire year.  This will be appropriate where it is known that further periods of one-off employment are unlikely.

Before treating one-off earnings as the annual rate of income, delegates should be satisfied that the following circumstances exist:

  • The payment is isolated in nature, discrete, for a short-term or for a closed period, and
  • Has not occurred before (within the year); and
  • Is not likely to continue or be repeated (within the year).

In considering these factors, the client's recent employment history and the likelihood of future paid employment should be taken into account.

Where one-off employment is repeated

The existing assessment of a one-off period of employment will need to be reviewed, if a further instance of employment eventuates.

Where the second period of one-off employment occurs shortly after the first period, both earnings amounts may be totalled to arrive at a new estimate of the annual rate.  That is, the initial assessment is replaced by the revised estimate, which then applies from the start of the assessment period.  This approach is suggested because the assumption that was made when arriving at the initial rate of income, that the earnings are not likely to be repeated, is now invalid.

Where considerable time has elapsed between the two periods of employment, the rate of income from the second period of employment can be assessed independently, and replaces the rate of income determined from the first period of employment.  The revised rate then holds from the time of the second period of employment.  This approach is suggested because the passage of time will break any connection between the two periods of employment, requiring that a fresh assessment of the rate of income, based on the new circumstances, be arrived at.

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Small earnings amounts

There is no discretion in the VEA to ignore small, one-off, earnings amounts.  For example, a one-off amount of $100 which is not expected to be repeated must be held in the assessment, at a fortnightly rate of $3.84.  Not recording small earnings amounts will result in an incorrect income amount being held if future earnings do arise, or if deemed income amounts are already held in the assessment.

It is important to set review dates when holding earnings arising from one-off or irregular employment, as the amounts should be removed from the assessment after 12 months if further employment does not occur.

One-off employment - examples

Example 1

A veteran is employed as a Christmas Santa and earns $1000 over the Christmas period.

Annual rate of $1000 divided by 26 = $38.46 per fortnight.

Example 2

Every year the client picks fruit for 4 weeks, earning $1600, and has no other earnings for the year.  In this case the known employment earnings over the four weeks of $1600 can be regarded as the annual rate, with a fortnightly rate of $61.54 held in the assessment.

The client may unexpectedly receive more work later in the year.  In this case the previously held rate of earnings will need to be adjusted to take into account the second period of earnings, and the rate of pension adjusted if necessary.

Where the follow-up work occurs considerably later in the year, delegates should consider the earnings from this period independently from the initial earnings.  A new assessment of income should be determined, based on the known circumstances of the further period of employment and the prospects of further earnings being received.

Obligations and date of effect

The client is obliged to advise of any event or change in circumstances in relation to earnings.

As with variable earnings, the options for determining the date of effect will depend on whether the review process is regarded as a DIR, or whether the client's notified changes are immediately acted on.  The date of effect rules as outlined above for variable earnings cases will equally apply to one-off or short-term earnings.