November 23, 2018

Changes: How long do you have to pay an employee on termination?

What's new?

As part of its four-yearly review, the Fair Work Commission (FWC) amended most modern awards.

89 modern awards had previously been silent as to when an employee's final payment must be paid.

The FWC has decided to impose a time for payment.

Employers are now required to make termination payments to an employee within 7 days of the date of an employee’s departure.

Details of the new termination payment time-limit

This applied from 1 November 2018.

In 89 of the 122 modern awards, the following model clause was added:

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

(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 [National Employment Standards (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 [Fair Work] Act.

The FWC may make an order delaying the requirement to make a payment under this clause. For example, the FWC could make an order delaying the requirement to pay redundancy pay if an employer makes an application under the Fair Work Act for the FWC to reduce the amount of redundancy pay an employee is entitled to under the NES.

Long service leave entitlements

Employers should separately consider the timing of payment of long service leave entitlements for a departing employee.

State and Territory long service leave laws or long service leave entitlements 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.

What’s the situation where the employer gives no notice?

An employer should make immediate payment in lieu of notice.

Also take note that, until a payment is made in lieu of notice, the employee's termination might not have occurred yet.

What should you do next?

  1. Find out if you are required to be making termination payments to your employee within 7 days after their employment terminates. Check this list of affected modern awards to find out if the changes apply to employees in your organisation or industry.
  2. If you are affected, think about the requirements of your State of Territory’s long service leave entitlement payment requirements. This may require payment sooner than 7 days after an employee departs.
  3. Look at your payroll processes. If your process is to make termination payments in the next payroll run, you will need to change this practice.
  4. If you have not yet done so, you should bring into effect a new procedure for exiting employees.
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