Termination Pays: What You Need to Know


15 Oct, 2017

When an employee resigns or is terminated from your workplace, you need to ensure that you correctly calculate and pay all their entitlements in their final pay.


Final Payment Inclusions

An employee’s final pay includes:

  • Payment for hours they have worked which includes penalty rates and allowances.
  • Payment in lieu of notice (if applicable).
  • The balance of any annual leave they have accrued.
  • Any annual leave loading for their accumulated annual leave if it would have been paid during employment.
  • Accrued or pro rata long service leave (if applicable).
  • Redundancy pay (if applicable).
  • Commissions or bonuses provided by the contract of employment.
  • The balance of any time off in lieu of overtime worked that the employee has accrued but not yet taken.


Final Payment Things to Remember

Personal Leave: You do not pay out any accrued sick or carers leave.

Super Guarantee Payments: You only pay super guarantee payments on ordinary time earnings, which means you don’t include accrued leave or redundancy payments in the calculations, but you do include payment in lieu of notice.

Insufficient Notice: If the right amount of notice by the employee has not been given under the provisions of their award, you are entitled to withhold payment for the number of hours that should have been worked.

Payment in Lieu of Notice: You are not required to have an employee serve out their notice period. You may choose to pay the employee their full rate for the period of their notice rather than having them work, or arrange a combination of working some notice and paying some time in lieu of notice. If you choose to pay out the notice, the employee does not accrue any annual leave for the notice period they were paid out for.

Leave in Advance: If the employee has taken leave in advance and their employment ends before they accrue it back, you can deduct the amount still owing from their final pay.

Final Pay Time Due: While the Fair Work Act is silent on when a final pay should be processed, some Awards or agreements contain clauses specifying maximum time periods. The employee’s final pay should be paid on their last day of work or as soon as possible as agreed between the parties.


A note on Annual Leave Loading Payments

Annual Leave Loading is a payment that is paid to an employee on top of their normal rates of pay to cover additional expenses that are incurred during their annual leave.

Originally it was designed to compensate employees who worked regular overtime and would be financially disadvantaged when they went on leave. Over the years the payment rolled out to most awards and employees whether regular overtime was worked or not.

Annual leave loading is calculated at 17.5% of the normal rate of pay.

In the past, some awards explicitly exclude the payment of annual leave loading in final pays. However, these provisions were overwritten by a decision of the Federal Court of Australia in 2015, which found that the 17.5% leave loading is payable on annual leave termination payments, even if the award or agreement states otherwise.

In other words, in most cases, annual leave loading is payable on termination.


HR Processes

When an employee leaves your business, ensure that you run through your exit checklist prior to the person leaving (we have one in our HR Manual templates).

This will help to ensure you get back all items belonging to the company, as well as helping you manage potential security risks, end IT access, as well as ensuring other staff and clients have been notified (as appropriate).

Remember to ensure you get a final signed timesheet, as well as paying any outstanding expense claims prior to the person leaving.  Remember also to check the email or mailing address of the person so you can forward the PAYG summary at the end of the financial year.


For more information on termination payments, check out the Fair Work Website:




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HR Author and Lecturer with over 25 years' experience in human resources and workplace relations in Australia. Lead Author of Instant HR Policies & Procedures, NDIS Direct Employment HR Manual, and Employee Performance Reviews: Tips, Templates and Tactics.

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