You could have termination pay wrong
While it might be common practice, by waiting until the next pay run to process termination pay rather than making certain termination payments on or by the employee’s last day, you could be falling short of the law.
Here’s a couple of things I’ve found many employers are not aware of:
Pay in lieu of notice of termination needs to be paid before or on the employee’s last day under the National Employment Standards.
Most employers know that other than in cases of summary dismissal, permanent employees must be provided with notice of termination or payment in lieu of notice. But did you know, that for payment in lieu, the NES actually requires that an employer must not terminate the employee’s employment unless the notice has been paid?[1] This obligation was confirmed in a recent Federal Court decision in which it was found that an employer who dismissed an employee by email but did not provide her with final payment including pay in lieu of notice until several days later, breached the NES. In that case, the Judge stated that it is a “precondition to lawful dismissal, an employer must first make any payment in lieu of notice to an employee whose employment is terminated.”[2]
2. In Victoria, an employee’s long service leave entitlement needs to be paid on the employee’s last day. It can’t wait until the next pay run.
In two recent decisions,[3] the Magistrates Court of Victoria has found that a failure to pay an employee’s accrued but untaken long service leave entitlement in full on & the day employment ends is a breach of the Long Service Leave Act 2018 (Vic). Not only that, but failure to do so is a continuing offence meaning that for corporations, a penalty of up to $11,095.20 (60 penalty units) can apply for each day the full LSL entitlement remains unpaid.
As to why, the Court has said: “for many employees, payment of any entitlements at a time when their employment ends directly impacts their financial position, for example if they have not secured alternate employment and are unemployed or in the process of job hunting.”
As to the purpose of the provision, the Court stated: “The evident purpose of s 9(2) is to secure employers’ compliance with their obligation to pay departing employees their long service leave entitlements when their employment ends. This purpose is best promoted by giving full effect to the words in the penalty part of the provision, and reading s 9(2) as creating a continuing offence. It creates a very real incentive for an employer to pay outstanding long service leave entitlements on time, and to rectify any underpayment promptly.”
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[1] Fair Work Act 2009 (Cth) s 117(2)
[2] Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022] FCA 481, [192]
[3] Saluwadana v Coles Supermarkets [2021] VMC 8; Optus Administration Pty Ltd v Saluwadana [2023] VSC 243