Where employees hand in their notice, but do not comply with the notice periods listed in their award or industrial agreement, employers are entitled to withhold some wages in lieu of notice.
A recent decision by the Fair Work Commission clarified these provisions and apply from 1 November 2019.
In the past employers could withhold monies from a final pay. This caused confusion and inconsistencies as some employers withheld monies from accumulated leave payments and others only from wages.
The Commission has now determined that employers can only withhold monies from wages, which excludes all other benefits payable.
They have also determined that a maximum of one week’s wages may be withheld, regardless of the notice term specified in the award or agreement.
In addition, they have determined that if the person is under 18, then employers are not entitled to withhold any wages.
Finally, any deduction of wages must not be unreasonable in the circumstances.
The model clause is as follows:
X. Payment on termination of employment
(a) The employer must pay an employee no later than 7 days after the day on which the employee’s employment terminates:
(i) the employee’s wages under this award for any complete or incomplete pay period up to the end of the day of termination; and
(ii) all other amounts that are due to the employee under this award and the NES.
(b) The requirement to pay wages and other amounts under paragraph (a) is subject to further order of the Commission and the employer making deductions authorised by this award or the Act.
Note 1: Section 117(2) of the Act provides that an employer must not terminate an employee’s employment unless the employer has given the employee the required minimum period of notice or “has paid” to the employee payment instead of giving notice.
Note 2: Paragraph (b) allows the Commission to make an order delaying the requirement to make a payment under clause X. For example, the Commission could make an order delaying the requirement to pay redundancy pay if an employer makes an application under section 120 of the Act for the Commission to reduce the amount of redundancy pay an employee is entitled to under the NES.
Note 3: State and Territory long service leave laws or long service leave entitlements under s.113 of the Act, may require an employer to pay an employee for accrued long service leave on the day on which the employee’s employment terminates or shortly after.
Read more about notice and final payments on the Fair Work Website.
What you need to do now
- Review all awards/ industrial agreements that cover your employees to understand what provisions apply in your situation.
- Review the Long Service Leave provisions that apply in yours state to your employees to ensure you know the deadlines for payments, as some require you to pay on the day of termination.
- Update your employee manual to reflect the new provisions relating to withholding wages on termination for inadequate notice. (Our Employee Manual contains an updated clause that you can use).
- Review your payroll process to ensure that it meets the new requirements.
- Consider extending these rights to award free employees to ensure you have consistent processes and application across your workforce.
