A couple of recent court decisions have helped to clarify the obligations of employers relating to the timing of payments to an employee at the time of termination of their employment.
In our experience, it’s common practice to make any payments due to employees as soon as possible (and certainly within 7 days) of the date of their termination. These recent decisions however clarify that payment is required ON THE DAY OF OR EVEN PRIOR TO TERMINATION.
The recent decisions specifically relate to a payment to an employee in lieu of notice of termination, and payments relating to accrued but untaken annual leave (plus annual leave loading).
Fines of up to $66,000 per occurrence may be incurred for breaches of these requirements.
Payment in lieu of notice
If as an employer you are making a payment to an employee in lieu of the required period of notice, the Federal Court decision have clarified that the payment must be made before the employment terminates.
In the case involved (Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022]), the employee was subject to immediate termination though did not receive her payment in lieu of notice until 4 days later. The Court ruled that because she had been paid after her termination date, her employer had breached the requirements of the Fair Work Act.
Penalties and/or compensation are yet to be determined.
Payment of accrued but untaken annual leave
Another Federal Court decision (Dorsch v HEAD Oceania Pty Ltd (Penalty) [2024]) has confirmed that payments relating to any accrued but untaken annual leave, and annual leave loading, must be paid to an employee on or before the date of termination. The decision clarifies the wording of the Fair Work Act that says that payments must be made “when” employment ends.
In this case, the employer did not pay their former employee their entitlements in respect of annual leave (which totalled about $8,000) until 3 months after the date of their termination. As a result, the employer was ordered to pay their former employee a penalty of $17,000
Lessons / Tips for Employers
- Be aware of your obligations in respect of the quantum and timing of payments when terminating an employee’s employment
- At the time of advising an employee that their employment is being terminated be sure that (1) necessary calculations have already been completed, (2) that you have relevant funds available and (3) there is a process in place to promptly make the payments required (noting that a payment in lieu of notice needs to be made before employment ends).
Let us know if you need additional information or support.
This information is of a general nature only and applies to employers/employees under the Fair Work system (which is most employers/employees), It is not formal or legal advice. Information is we believe current and accurate at the time of publication – 27/09/2024.