Payments you may be liable for post termination

Analysis

Payments you may be liable for post termination

Employers may be surprised to discover they are liable for payments after the date of termination.

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Once an employee’s employment ceases, an employer may presume that when the appropriate termination payments (such as accrued leave) are paid on the date of termination, this settles any monies related to that contract of employment.

However, employers may be surprised to discover there are some employment conditions for which an employer may still be liable after the date of termination. This is because the entitlement may relate to work performed during the course of the employee’s employment. 
 
This article looks at the some of the more common types of post-employment payments an employer may be obliged to pay to an ex-employee.

Back payment of wages

 
Although not a breach of an industrial instrument at the time, a former employee would be able to claim for any back-dated wage increase ratified subsequent to the date of termination of employment.

As a general rule, an employee is entitled to be forwarded any monies earned during their employment, subject to complying with the relevant criteria for payment, regardless of the worker's employment relationship with the employer. 
 
For example, the Annual Wage Review recently increased award rates by 3% from the first full pay period commencing on or after 1 July 2014. An employee who resigns or is terminated from the beginning of the first pay period would be entitled to receive the adjustment if paid the minimum wage rate under the applicable modern award.

Underpayments

 
Where an employee has been underpaid wages or entitlements, any subsequent adjustment must be forwarded to the employee. 
 
Under the Fair Work Act (FWAct) (s545(5)), a court must not make an order in relation to an underpayment that relates to a period that is more than six years before the proceedings concerned commenced.

This means an employee can sue, before an eligible court, for underpayment of amounts due under a modern award or enterprise agreement, as well as amounts relating to the National Employment Standards (NES), such as annual leave, personal/carer’s leave and termination pay. 
 
It is not a pre-condition that a claim for underpayment may only occur while the employee remains in the employment of the employer. Indeed, post-employment underpayment claims by employees are more likely to happen rather than during the course of the employment.

Superannuation

 
An underpayment of wages requires the necessary adjustment to the employer’s superannuation contribution under the Superannuation Guarantee (SG).According to the Australian Taxation Office, if an employer back-pays salary or wages to a former employee the employer is required to pay superannuation guarantee contributions on that back-pay. 

Long service leave

 
An employee may lodge a claim with the appropriate court alleging non-payment of long service leave on termination of employment. Generally, the three most common scenarios where an employee claims payment of pro rata long service leave subsequent to resignation or dismissal by the employer, are:
  • A claim their resignation was due to illness or incapacity, domestic or other pressing necessity;
  • Where an employee claims to have qualified because overseas service should count as part of their total service with the organisation; and
  • An employee is dismissed due to misconduct and may argue that the gravity of the misconduct did not justify forfeiture of an entitlement to pro rata long service leave. This is because most long service leave statutes prevent payment of pro rata long service leave on termination if the misconduct is serious or serious and wilful.
 
As with underpayment of wages, the relevant state or territory legislation usually provides that an employee has six years in which to make application for non-payment (or underpayment) of entitlements relating to long service leave.

Commissions

 
Because of the nature of certain occupations, there may be monies that have been earned by the employee but which have not been verified until after the contract of employment has been terminated.

In these circumstances, while the contract of employment has been terminated, an employer may still have an entitlement because of the provisions of the applicable modern award, enterprise agreement or contract of employment. 
 
A written agreement providing payment of commissions as a post-employment payment is common in occupations such as wholesale sales (commercial travellers) and real estate agents, where a substantial percentage of an employee’s total earnings are based on commissions.
 
Post-employment payment of commissions is common because there is a necessary time delay between the settlement of a sale and the payment of a commission.

A modern award may provide that commission on orders obtained by the employee prior to termination of employment be payable to an employee after the cessation of employment. An example is contained in the Real Estate Industry Award 2010. 
 
Post-employment payment of commission is not usually dependent on which party terminated the employment.

Payment in lieu of notice

 
The FWAct (s117(2)(b)) requires the employer to provide the equivalent amount of payment in lieu of notice. The amount in lieu is to be paid to the employee, at the full rate of pay for the hours the employee would have worked had the employment continued until the end of the minimum period of notice.

“Full rate of pay” is defined in the FWAct (s18) to include the following: incentive-based payments and bonuses; loadings; monetary allowances; overtime or penalty rates; any other separately identifiable amounts.

Superannuation contributions

 
In defining “full rate of pay” under the notice of termination provision of the FWAct, the Explanatory Memorandum to the Fair Work Bill 2009 states that when an employer elects to pay an employee in lieu of providing notice of termination, this payment must include payments made on behalf of the employee, including superannuation contributions.

In addition, the employer is required to include the payment in lieu of notice in the employee’s ordinary time earnings when calculating the SG. (see Superannuation Guarantee Ruling 2009/2).

Other separately identifiable amounts

 
While the meaning of this term has not been subject to judicial review (except in regard to employer contributions to superannuation), other conditions of employment, such as company provided motor vehicle or mobile phone, may also be included in the employee’s full rate of pay for the purpose of calculating payment in lieu of notice under the FWAct, particularly if the condition is subject to fringe benefits tax (FBT).

The reportable fringe benefit amount appearing on the employee’s PAYG tax payment summary may be considered a reasonable amount as the value of the relevant employment condition.
 
If the motor vehicle or mobile phone are, however, considered a tool of trade then these items would not be included in the employee’s ordinary pay when calculating payment in lieu of notice.

Accident pay

 
A number of modern awards provide a non-wage related transitional provision with respect to accident make-up pay when an employee is absent on workers compensation, where accident pay was provided under the applicable pre-Fair Work award. 

Accident pay is a make-up pay, representing the difference between the amount of workers compensation received from the insurer and the employee’s actual (or award) rate of pay.

A common provision usually requires the employer to continue to pay accident pay while the employee remains on workers compensation or for a maximum specified period.  
 
The requirement to pay accident pay usually continues beyond the worker's employment with the employer, unless the reason for termination was due to serious and wilful misconduct. 
 
The maximum period of accident pay will depend on the applicable pre-Fair Work instrument, although this maximum period can vary from between six months to 12 months. The employee would usually be required to provide evidence of workers compensation payments to remain eligible to receive accident pay post-employment.
 
Modern awards that contain this transitional provision include Clerks – Private Sector Award 2010; Building and Construction General On-site Award 2010; Commercial Sales Award 2010; Meat Industry Award 2010; Road Transport and Distribution Award 2010, and Vehicle Manufacturing, Repair, Services and Retail Award 2010.
 
It should be noted the accident make up pay transitional provisions in modern awards are expected to continue to apply only until 31 December 2014.
 
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