What are the most common pay requirements for employers?
In addition to wages, the following outline some of the more common pay requirements employers should be aware of.
Payment for annual leave
If an employee takes a period of annual leave, the employer must pay the employee at their base rate of pay for the ordinary hours of work during this period, unless an Award specifies otherwise.
If the employee has accrued but untaken annual leave when their employment ends, employers must pay out this accrual to the employee on the final day of employment.
Payment in lieu of notice of termination
Where an employer terminates an employee, under the NES, the employer can either require the employee to work out the notice period, or make a payment in lieu of notice.
If an employer terminates an employee without giving the minimum period of notice, the employer must still pay the employee for this period at the full rate as if the employee was still working for the required period.
Further, it is important to note that, pursuant to the FW Act, if an employer makes payment to an employee in lieu of notice, this payment must be paid on the final day of employment (and not within 7 days of the employment ending).
Entitlement to redundancy pay
An employee is entitled to be paid redundancy pay if the employee is terminated at the employer’s initiative because the employer no longer requires the role to be performed.
Employees are excluded from receiving redundancy pay if they are casual, their period of continuous service is less than 12 months, or if they were employed by a small business. However, please note that an Award, enterprise agreement or contract may specify other rules or obligations in relation to redundancy pay.
Long service leave
Unlike other employment related legislation, long service leave is generally governed by individual state laws (or in some instances, pre modern awards). Under Victorian legislation, most employees will be entitled to long service leave if they have worked continuously with one employer for at least 7 years.
If employment ends after 7 years for any reason, the employee must be paid any accrued but untaken long service leave. The amount is to be paid in full on the final day of employment. Other states differ in terms of the accrual of the entitlement, and the requirement to pay it out in certain termination circumstances.
Final termination pay
The relevant industrial instruments will dictate when certain payments must be made.
Many Awards state that employers must make their final payment to employees (such as wages and accrued leave entitlements) within 7 days of the employment ending. However, some Awards (such as the Manufacturing and Associated Industries and Occupations Award 2020) state that outstanding wages must be paid by the end of the next business day, but all amounts due to the employee under the NES must be paid no later than 7 days of the employment terminating. However it is important to note that any Award requirements will be overridden by the NES if the NES provides for payment to be made sooner.
Therefore, it is important to be aware of any obligations contained in any relevant industrial instrument and the NES pertaining to payment on termination.
Generally, an employee should receive the following entitlements in their final pay:
- Outstanding wages for hours they have worked, including penalty rates and allowances.
- Any accumulated annual leave, including annual leave loading (if applicable) if it would have been paid during employment.
- If applicable: accrued or pro rata long service leave, payment in lieu of notice (if notice is not worked out), and redundancy pay.
Some Awards allow for deductions from final pay in certain circumstances.
As outlined in this article, some of these payments are required to be made on the final day of employment – whilst others may be made later on. In practice, this may mean that certain payments must be paid by different timeframes, for example, outstanding wages can generally be paid within 7 days, but payment of outstanding annual leave and payment in lieu of notice of termination should be made on the final day of employment. We expect this will create practical difficulties for payroll and human resources teams.
If an industrial instrument doesn’t state when certain entitlements of an employee’s final pay must be paid, it is recommended by the Fair Work Ombudsman that an employee receives the payment within 7 days of the employment ending.
