It is common practice for payroll teams to process an employee’s termination payments in the next pay run after the employee’s last day of work. However, recent Court decisions have highlighted that this common practice is not consistent with the strict requirements of the Fair Work Act 2009 (Cth) (FW Act) and could expose employers to the risk of penalties.
Finalising Payments on the Last Day
In two recent decisions, the Federal Court of Australia has confirmed that both annual leave and payments made in lieu of notice need to be paid on an employee’s last day of work:
- Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022] FCA 481: The Federal Court ruled that an employer breached section 117(2)(b) of the FW Act by delaying the final payment of a payment in lieu of notice until four days after termination. The relevant FW Act provisions provide that making payment in lieu of notice is a precondition for lawful dismissal, and therefore the payment must be made prior to termination.
- Dorsch v HEAD Oceania Pty Ltd [2024] FCA 162: A significant penalty of $17,000 was imposed on an employer for a three-month delay in finalising a terminated employee’s payment. The Court ruled that payments of accrued but untaken annual leave need to be made on an employee’s last day of employment.
Additionally, in many States, it is necessary for long service leave payments to be made on the last day of employment. In Victoria, for example, an employer is exposed to penalties for every day after the employee’s last day of employment that a long service leave entitlement remains unpaid.
Long service leave requirements will vary from State-to-State, so we recommend obtaining advice that is specific to your circumstances.
Managing Delays in Final Payments
While operational challenges might sometimes delay final payments, employers should seek to make final payments as close as possible to the final day of employment. This approach not only ensures compliance with the FW Act but also protects employers from potential penalties and breaches of employment contracts and other legislation.
Take Action and Ensure Compliance
Don’t risk penalties by delaying final employment payments. Ensure you are meeting the requirements of the Fair Work Act 2009 (Cth) and other relevant legislation. For tailored advice and support in managing your employment obligations, contact our workplace and employment experts Timothy Zahara and James Simpson.
