Date of termination and payment in lieu of notice

Q&A

Date of termination and payment in lieu of notice

Calculating termination payments can create issues when an employer chooses to pay out the notice period of an employee who is resigning or being dismissed.

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Calculating termination payments can create issues when an employer chooses to pay out the notice period of an employee who is resigning or being dismissed.
 
The question below raises these issues.
 
We will be terminating an employee next week without notice, providing him with the required payment in lieu of notice.
 
However, it has been brought to our attention that we should be calculating his entitlements up to the date he would have been terminated had we given him the actual period of notice. This would mean a date in four weeks time.
 
To what date do we calculate any of the employee’s entitlements due on termination of employment?
 
There are two issues in this case.
 
Firstly, the actual date of termination is the relevant date for calculating entitlements such as pro rata annual leave, long service leave, redundancy pay, etc, as well as any other employment conditions based on the employee’s continuous service with the employer. The employee’s continuous service with the employer would cease on the actual date of termination.
 
However, as a separate issue, in calculating the amount of compensation with respect to payment in lieu of notice of termination, s661(4) of the Workplace Relations Act states that the required amount of compensation instead of notice is obtained by including the total amounts the employee would have received if the employee’s employment had continued until the end of the required period of notice.
 
The total amounts in compensation include:
  • the employee’s ordinary hours of work (including non-standard hours); and
  • amounts ordinarily payable in respect of those hours, including allowances, loading and penalties, etc; and
  • any other amounts payable under the employee’s contract of employment.
 
The amount of compensation would include payments related to rostered or contracted overtime, shift penalties for shift rosters that would have been worked and employer contributions under the Superannuation Guarantee (and these contributions are paid directly to the employee not to the fund).
 
 
Source: Paul Munro, IR Consultant.
 
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