The top five mis­takes employ­ers make when ter­mi­nat­ing employ­ment: No.2 Incor­rect ter­mi­na­tion pay 

The rules on ter­mi­na­tion pay are extreme­ly com­plex and it is no sur­prise that this is an area where errors often occur.

Fre­quent areas of con­fu­sion include: is annu­al leave paid out on ter­mi­na­tion? (Yes); what about per­son­al leave? (No); what about long ser­vice leave? (It depends!).

For some time there was uncer­tain­ty as to whether annu­al leave load­ing was paid on annu­al leave paid out on ter­mi­na­tion, but now that appears to be set­tled (it is paid, so long as the employ­ee was enti­tled to annu­al leave load­ing when they took annu­al leave dur­ing employment).

Con­fu­sion also sur­rounds the treat­ment of notice, redun­dan­cy pay and pay­ment in lieu of notice. The impor­tant point to note is that under the Fair Work Act 2009 notice is a com­plete­ly sep­a­rate enti­tle­ment to redun­dan­cy pay and so the fact that an employ­ee might be enti­tled to redun­dan­cy pay will have no bear­ing on their enti­tle­ment to and amount of notice.

Pay­ment in lieu of notice is also a tricky area, but the gen­er­al posi­tion is that where an employ­er deter­mines to end employ­ment imme­di­ate­ly (or part way through a notice peri­od), the employ­ee must be paid an amount in lieu of their notice peri­od enti­tle­ment (or the part of the notice peri­od which they did not work). Of course there may be cir­cum­stances where an employ­ee is not enti­tled to any peri­od of notice or pay­ment in lieu (ter­mi­na­tion for seri­ous mis­con­duct, etc).

This is, how­ev­er, not the end of the sto­ry. Super­an­nu­a­tion enti­tle­ments vary depend­ing on the type of ter­mi­na­tion pay­ment. For exam­ple, super is not paid where annu­al leave is paid out on ter­mi­na­tion, but is paid where a pay­ment is made in lieu of notice.

And then, of course, there is the ques­tion of tax!

Final­ly, there is often con­fu­sion about when the ter­mi­na­tion pay­ment should be made, part­ly because the Fair Work Act 2009 does not deal with this point specif­i­cal­ly. Best prac­tice would dic­tate that pay­ment is made con­cur­rent­ly with the ter­mi­na­tion of employ­ment or on the next pay day. Some mod­ern awards, how­ev­er, are explic­it about the tim­ing of ter­mi­na­tion pay. For exam­ple, clause 31.4 of the Build­ing and Con­struc­tion Gen­er­al Onsite Award 2010 states: ​“When notice is giv­en, all monies due to the employ­ee must be paid at the time of ter­mi­na­tion of employ­ment. Where this is not prac­ti­ca­ble, the employ­er will have two work­ing days to send monies due to the employ­ee by reg­is­tered post (or where paid by EFT the monies are trans­ferred into the employee’s account).”

Giv­en the finan­cial penal­ties employ­ers can face for con­tra­ven­ing the Fair Work Act 2009 or an enter­prise agree­ment or award, it is always best to seek legal advice when cal­cu­lat­ing ter­mi­na­tion pay.