There are strict legislative requirements relating to the timing of processing employee termination payments. If they are not complied with, employers could face penalties. Recent decisions have confirmed that both annual leave and payments made in lieu of notice must be paid on the employee’s last day of work.
In Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022] FCA 481, the Court ruled that payment in lieu of notice is a precondition for unlawful dismissal, and therefore must be made prior to termination. Similarly, Dorsch v HEAD Oceania Pty Ltd [2024] FCA 162 held that payments of accrued annual leave must be made on an employee’s last day of employment.
In some States, there is also a requirement for long service leave payments to be made on the last day of work:
- Under section 9 of the Long Service Leave Act 2018 (VIC), an employer is exposed to penalties for every day after the employee’s last day of employment that their long service leave entitlements remain unpaid.
- Under section 4(2) Long Service Leave Act 1955 (NSW), long service leave entitlements must be paid on the employee’s next regular payday, except if the employee is terminated for serious misconduct, whereby the payment must be made within 7 days of the termination.
- The Industrial Relations Act 2016 (QLD) does not specify a timeframe for payment of long service entitlements upon termination. However, section 38 confirms that annual leave must be paid to the employee immediately before termination, unless an applicable industrial instrument states otherwise. On this basis, long service leave should also be paid on the employee’s last day of employment.
If you are contemplating termination, obtain advice prior to taking action. It is our experience that the way a termination occurs is just as important as the reason for the termination itself and getting advice prior to termination is an important step in protecting employers from risk.
Get in touch to discuss your options with our team.