2 min read

When do employers need to make termination payments?

By Charles Power

The Full Bench of the Fair Work Commission (FWC) has considered the appropriate time period for making payments to employees on termination of their employment.

The FWC recognised that it was unfair to employers to be required to make termination payments at the time of termination or within a few days thereafter.

However, the FWC also stated it was not sufficient for termination payments to be made in accordance with the employee’s usual pay cycle, because an employee may have to wait up to a month to receive their payment.

Payments due on termination of employment include:

  • payments in lieu of notice;
  • outstanding salary;
  • accrued untaken annual leave and long service leave; and
  • in redundancy circumstances, a redundancy payment.

The FWC ruled that modern awards should provide for unpaid wages and all other amounts due to an employee to be paid no later than 7 days after the employee’s last day of employment.

Payments in lieu of notice

The FWC recognised that an exception may apply for payments in lieu of notice. Section 117(2) of the National Employment Standards (NES) in the Fair Work Act 2009 (Cth) (FW Act) prohibits the termination of an employee’s employment (absent serious misconduct or other exceptions applying) unless you have:

  • given the prescribed minimum period of notice; or
  • made a payment in lieu of notice before or at the time of termination of employment.

A contravention of s 117(2) is a contravention for which a civil penalty may be imposed.

Accordingly, if you tell an employee you are terminating their employment by a payment in lieu, you need to make the payment in lieu at the time of the termination to avoid exposure to the imposition of a civil penalty.

Outstanding wages

The FWC also provided some guidance on the operation of s 323 of the FW Act. Section 323 regulates aspects of the payment by an employer to an employee of amounts payable in relation to the performance of work. It covers all wage and wage-related amounts due from an employer to one of its employees, regardless of the source of the entitlement. It certainly covers wages, salaries, commission payments, incentive-based payments, loadings, monetary allowances, overtime, penalty rates and leave payments.

Section 323 requires you to pay these amounts to employees no later than 1 month after the entitlement to payment accrues. The payment is to be made by either cash, cheque or EFT.

Redundancy payments

The FWC also recognised that an exception may need to apply where an employer applies for a full or partial exemption from making redundancy payments under s 120 of the FW Act (on grounds that acceptable employment has been obtained). For example, the FWC should have the power to make an order delaying the requirement to pay redundancy pay until the application is resolved.

Lessons for employers

Make sure the entitlement to bonuses or commissions is not triggered too early. For example, some employers may retain amounts of commission earned in case certain unforeseen costs arise that are entitled to be deducted from the gross commission figure. However, once an entitlement to be paid arises, s 323 of the FW Act requires payment within a month. Failure to pay attracts exposure to civil penalties.

If you wish to terminate the employment of an employee immediately by making a payment in lieu of notice, you need to ensure the payment is made on the last day of employment.

In relation to other termination payments aside from notice payments, don’t leave these payments for the usual pay cycle. Award-based employees will need to receive these payments within 7 days of the last day of employment.

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