Termination payments - a checklist

Analysis

Termination payments - a checklist

This is a summary of the types of payments employers should check to determine whether employees have particular entitlements on termination of employment.

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This is a summary of the types of payments employers should check to determine whether employees have particular entitlements on termination of employment.

An employee's entitlements to certain payments on termination continue to be a source of enquiry from employers. The varied circumstances which can surround an employee's dismissal or resignation can result in a number of potential entitlements that may be payable, or not, on termination of employment.

A range of the circumstances under which an employee may have an entitlement, and the method of calculation where a payment is applicable are considered here.

Note also, some new workplace agreements and pre-WorkChoices industrial instruments may provide for payments which post-date a person's employment with the employer.

Matters covered

The payments addressed below are:

  1. Annual leave
  2. Annual leave loading
  3. Long service leave
  4. Payment in lieu of notice
  5. Post-termination payments
  6. Personal/carer's leave
  7. Redundancy/severance pay
  8. Rostered days off (RDOs)

Permanent employees

The checklist of entitlements contained in this article are usually payable only to full-time and part-time employees, not casual employees.

Annual leave

The WorkChoices Standard will usually regulate the annual leave conditions for employees covered under a new workplace agreement (collective or AWA), pre-reform Federal award or a NAPSA.

With the introduction of WorkChoices, annual leave accrues on the basis of 1/13 of the nominal hours worked during each four week period of continuous service.

Annual leave accrued under WorkChoices (from 27 March 2006) is payable at the employee's basic periodic rate of pay (which excludes bonuses, loadings, penalty rates and monetary allowances).

Standard

Under the Standard, pro rata annual leave on termination of employment is an entitlement that an employee cannot forfeit, regardless of the circumstances surrounding the employee's termination of employment.

This means that, subject to the employee having an untaken balance of accrued annual leave due at the date of termination, the accrual is payable on termination, even where, for example, the employee is terminated because of serious misconduct or the employee wishes to recover moneys overpaid to the employee.

No deduction

Even where an employee may owe their employer monies because of a breach of a condition of their contract of employment or an overpayment to the employee occurred, no deduction from the accrued annual leave on termination can occur.

Pre-WorkChoices accrual

Annual leave accrued prior to WorkChoices is payable at the rate of ordinary pay determined by the source of legal entitlement at that time, eg annual leave clause in an award or agreement, or State/Territory annual leave legislation.

This, in many instances, may differ from the ordinary pay definition under the WorkChoices Standard, therefore the employer should check the pre-WorkChoices annual leave entitlement, where applicable, to determine the appropriate remuneration payable for that part of the entitlement.

Pre-WorkChoices agreements continue to apply

The annual leave conditions provided under a pre-WorkChoices agreement, ie pre-reform certified agreement, pre-reform AWA or preserved State agreement, continue to apply to those employees covered by the applicable agreement.

Annual leave loading

Annual leave loading is a common entitlement under pre-WorkChoices industrial instruments and would continue to be enforceable under WorkChoices, where provided. However, it is not an entitlement under the WorkChoices Standard, therefore the employee's industrial instrument or individual contract of employment would need to provide this condition.

Completed years of service

It should be noted that the annual leave loading would apply to service related to each completed year of service, both pre- and post-WorkChoices service.

In pre-WorkChoices industrial instruments, the entitlement to annual leave loading on termination varies, although it is unusual for the loading to apply to an incomplete year of service. It usually applies where there is untaken annual leave from a previous completed year's service, and may also depend on whether the employer or employee terminates the employment.

Reference should be made to the applicable industrial instrument to determine an employee's entitlement to annual leave loading on termination of employment.

Long service leave

An employee's entitlement to long service leave on termination of employment is usually determined by a number of different factors.

These include: length of continuous service with the employer, what absences may or may not break continuous service with the employer, which party terminated the employment, the circumstances under which an employee may be entitled when resigning their employment, and at what remuneration any long service leave is paid on termination.

Generally, an employee with less than five years continuous service with the employer is not entitled to pro rata leave on termination, however, this is usually determined by the relevant State or Territory long service leave legislation or, in a minority of cases, the long service leave provision contained in the applicable pre-reform Federal award. Long service leave is usually applicable to all employees, including casual employees.

Payment in lieu of notice

When the employer dismisses an employee without giving the appropriate period of notice, the employee is entitled to receive the equivalent payment in lieu thereof. This may result in the payment of up to five weeks' pay in lieu for an employee with more than five years service and who is over 45 years of age.

The payment must include any amounts of remuneration the employee would have received if the notice period had been worked, eg shift allowance, rostered overtime, superannuation, etc.

Post-termination payments

An industrial instrument or contract of employment may provide for the payment of monies even when the employee's employment has ceased with the company.

Such post-dated payments include:

Commission

A workplace agreement or pre-WorkChoices industrial instrument may provide for post-employment entitlements when the payment is delayed because of the nature of the work.

For example, industrial instruments which cover occupations with a reliance on commission earnings, such as sales representatives, may provide for the payment of commission on orders obtained during an employee's employment to continue to be paid to the employee within a period of (usually) six months from the cessation of employment. Reference should be made to the relevant industrial instrument to establish an employee's entitlement with respect to post-employment commission payments.

Public holidays

Some pre-WorkChoices industrial instruments provide that an employee terminated by their employer within a specified period (usually two weeks) before a public holiday or a group of public holidays is entitled to be paid for those days. This can be particularly important when terminating an employee before Christmas or Easter.

Reference should be made to the relevant industrial instrument to determine an employee's entitlement to post-employment public holidays.

Accident pay

This is a common provision in pre-WorkChoices industrial instruments and is a payment related to an employee's absence on workers compensation. 'Accident pay' is a make-up pay that represents the difference between the amount of workers compensation paid by the insurer (usually the APCS rate) and the 'actual' rate of pay, ie including any overaward payment for a specified maximum period (usually between 26 weeks and 52 weeks).

The employee continues to receive accident pay until the employee ceases to be entitled to workers compensation or the prescribed maximum period is reached, whichever occurs first, with the make-up payment continuing despite an employee's employment being terminated by the employer.

Whilst accident pay is no longer enforceable where prescribed by a pre-reform Federal award, an employee under a NAPSA (previous State award) or pre-WorkChoices Federal or State agreement would continue to be entitled to receive this payment.

Personal/carer's leave

WorkChoices provides that under a new workplace agreement or a written contract of employment it is permissible for the employer to pay out an employee's accrued personal/carer's leave on termination.

A cashing out on termination provision contained in a pre-WorkChoices Federal or State agreement would continue to apply.

In the case of a similar provision contained in a pre-reform Federal award or NAPSA, the annual quantum of personal/carer's leave would need to be greater than 10 days per annum to still apply.

Pre-reform Federal award or NAPSA - unenforceable

Where the personal/carer's leave provision under the Standard apply to a pre-reform Federal award or NAPSA, cashing out provisions on termination (or at any other time) are unenforceable, although the employer may still pay out if he/she so wishes.

Policy enforceable

A workplace policy that provides for the pay out of personal/carer's leave on termination could form part of an employee's written contract of employment and would be an enforceable entitlement.

Redundancy/severance pay

The source of redundancy pay would usually be a pre-WorkChoices industrial instrument or a prescribed condition under a workplace agreement or a company policy under a contract of employment.

Redundancy pay prescribed under a pre-WorkChoices industrial instrument continues to apply, but in the case of a pre-reform Federal award, a provision that provides for redundancy pay when an employee resigns from his/her employment is not a 'bona fide' redundancy and is unenforceable.

Redundancy provisions preserved

WorkChoices 'preserves' the redundancy provisions contained in a pre-reform Federal award or NAPSA, but the condition is not mandatory under a new workplace agreement.

If, on or after 12 December 2006, an employer unilaterally terminates a workplace agreement, pre-reform certified agreement or AWA, or a preserved State agreement which contains redundancy provisions, the redundancy provisions continue to apply to those employees who were covered by the terminated agreement for a period of 24 months following the termination of the agreement, unless a new workplace agreement comes into operation for the affected employee/s before the 24 months expires, or the employee ceases employment with the employer before 24 months expires. These provisions will continue to apply to the affected employee/s when a transmission of business occurs.

Rostered days off (RDOs)

Many industrial instruments allow an employee to accumulate RDOs, usually up to a maximum of five days, without the payment of overtime. Where this arrangement is in place, the employer would need to ensure these RDOs are paid out as part of the employee's termination pay. Payment would be at the employee's ordinary rate of pay at the time of termination.

Related

Payments on termination of employment and WorkChoices

Preserved redundancy provisions explained

 

 

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