This is not an easy topic due to the interaction of different laws.
It is important to note that when making a decision about which rule applies in a given situation concerning an employee, the legislation will always over-ride the award, enterprise agreement or employment contract where the legislation is more beneficial to the employee, and the award or enterprise will always override the employment contract or company policy.
Most modern awards contain a ‘payment of wages on termination’ clause, which outlines the employer’s obligation to pay outstanding wages and entitlements when employment ends.
This is generally within seven days of the employment ending, although employers should still check the award.
Some awards require their final wages to be made on the last day of work and/or by the end of the next business day after the employment ends.
Even up until October 2020, the Fair Work Commission announced further changes to the “payment of wages on termination” clauses in several awards as part of the award review process.
Here is an example where an instrument may state two different time frames.
Business Equipment Award 2020 – Changes apply from October 2020:
15.4 Payment of wages on termination of employment
[15.4 substituted by PR723315 ppc 13Oct20]
(a) Upon termination of employment, the employer must pay an employee the wages due to the employee for any complete or incomplete pay period up to the end of the day of termination, by the end of the next business day after the day on which the employee’s employment was terminated.
(b) Where an employee is paid under a rostered day off system and has accrued a credit towards a rostered day off such credit must be taken into account in calculating wages due on termination.
(c) All other amounts due to an employee under this award or under the NES, other than those specified under clause 15.4(a), must be paid by no later than 7 days after the day on which the employee’s employment terminates.
(d) The requirement to pay wages and other amounts under clauses 15.4(a) and 15.4(c) is subject to further order of the Commission and the employer making deductions authorised by this award or Act.
NOTE 1: Section 117(2) of the Act provides that an employer must not terminate an employee’s employment unless the employer has given the employee the required minimum period of notice or “has paid” to the employee payment instead of giving them notice.
NOTE 2: Clause 15.4(d) allows the Commission to make an order delaying the requirement to make a payment under clause 15.4. For example, the Commission could make an order delaying the requirement to pay redundancy pay if an employer makes an application under section 120 of the Act for the Commission to reduce the amount of redundancy pay an employee is entitled to under the NES.
NOTE 3: State and Territory long service leave laws or long service leave entitlements under section 113 of the Act, 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.
As per NOTE 1, most awards contain a reminder regarding the requirement to provide any payment in lieu of notice on the day of termination.
Likewise, as per NOTE 3, most awards contain a reminder regarding payment of long service leave entitlements on termination. The timing of long service leave entitlements paid on termination has always been as per the respective State and Territory’s Laws.
IMPORTANT: Employers should consider the termination components that are being paid out and the laws around timing on those components.
Here is a summary:
|Final wages and all other amounts due under award or under the NES, (i.e. annual Leave)|
|Within 7 days of the employment ending or an earlier timeframe as per the award.|
|Payment in lieu of notice|
|On the day of termination Refer to SECT 117 of the FAIR WORK ACT 2009 (NO. 28, 2009)|
|Timing of payment for LSL on termination|
|Clause (5) (a) Where the services of a worker are terminated …. employer shall forthwith pay to the worker. (Note: ‘forthwith’ means immediately)||Clause 9 (1) and (2) On the day that the employment ended …(2) the employer must pay the full amount||The Act provides in Section 373 (6) for payment within 3 days of long service leave on termination||Clause 8 (4) (b) must be made to the worker immediately on the termination|
|Section 11 -Clause 7 (a) … as soon as practicable after termination||Clause 8 (4) (a) … as soon as practicable after termination||Clause 12 (4) …the employee shall be deemed to have commenced to take his leave on the date of the termination||Clause 9 (2) the employer shall, upon termination of … employment … pay to the employee|
Considerations for employers
- Review current procedures and tighten turnaround timeframes to ensure that termination information is communicated efficiently to payroll.
- Consider the termination components that are being paid out and the laws around timing on those components.
Make every effort to abide by the applicable legislations. Note: penalties may apply to late payments.