Termination Payments

We wanted to share some important information regarding termination payments, as it's something that many employers are unintentionally getting wrong.

Historically, common practice has been for Employers to make termination payments to Employees within 7 days of the employee's last day of work, or during the next pay cycle. However, it's becoming increasingly clear that in most cases, these payments should be made by (or on) the employee's final day of employment.

A summary of the relevant legislation and application of case law to various types of termination payments as outlined below.

Annual Leave

Section 90(2) of the Fair Work Act (the Act) states that when an employee's employment ends, and they have any untaken paid annual leave, the employer must pay them the amount they would have received had they taken that leave.

In the recent case of Dorsch v HEAD Oceania Pty Ltd [2024] FCA 162, the Federal Court ruled that this payment must be made by the employee's last day of employment. HEAD Oceania was fined $17,000 for delaying the payment of $8,022 in accrued annual leave, which was made three months after the employee’s final day of work.

Redundancy Payments

For Award covered employees, redundancy payments are often governed by the relevant Award. These usually mirror the requirements for paying National Employment Standards (NES) entitlements and are often due within 7 days after termination. However, the language in the redundancy provisions of the (NES) does not explicitly require redundancy payments to be made by the date of termination.

However, many employers do not fully comply with these requirements. As we've seen in other areas of payroll compliance, practices that were once considered less important are now gaining greater attention and enforcement.

Payments in Lieu of Notice

Section 117(2)(b) of the 𝘍𝘢𝘪𝘳 𝘞𝘰𝘳𝘬 𝘈𝘤𝘵 states that it is unlawful to terminate someone's employment by paying them in lieu of notice unless the payment in lieu has been made before their employment ends. This means the payment must be completed prior to the termination date. The Federal Court confirmed this in Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022] FCA 481, where making the payment in lieu four days after termination was found to be a breach of the Act.

Long Service Leave

Long service leave payments are determined on a state-by-state basis, but most states also require them to be made on termination.

To help you stay compliant and avoid any unnecessary issues, we recommend reviewing your current procedures around this.

We can help! Contact us for more information.