Payment in lieu of notice

Q&A

Payment in lieu of notice

Should regular overtime figure in calculations of payment in lieu of notice? This question was posed by an employer involved in a number of redundancies of workers who had regularly worked varying amounts of overtime.

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Should regular overtime figure in calculations of payment in lieu of notice? This question was posed by an employer involved in a number of redundancies of workers who had regularly worked varying amounts of overtime.

Q. We recently had to make a number of our employees redundant, with the relevant employees receiving redundancy pay and payment in lieu of notice of termination under the scale prescribed in the Federal Workplace Relations Act.

However, a number of these employees have queried their termination payout with respect to the payment in lieu of notice. These employees regularly worked varying amounts of overtime, between seven and 15 hours each week, although no overtime had been worked in the last four weeks.

Their union is arguing that they are entitled to receive an average of their ordinary pay which should include overtime payments paid during the previous 12 months.

At our workplace, overtime is worked on an incidental basis rather than a compulsory basis.

Under the Federal legislation, are we liable to pay an average that includes overtime payments, as part of the compensation in lieu of notice?

A. The answer would depend on the circumstances.

The legislation provides compensation on the basis of the employee's ordinary hours of work, the amounts ordinarily payable to the employee for those hours (including allowances, loadings and penalties), and any other amounts payable under the employee's contract of employment. It is the last provision that creates problems for employers.

Incidental basis

Generally, the courts have determined that where the overtime is worked on an incidental or 'as needs' basis, there would be no requirement to this as part of the compensation in lieu of notice.

Guaranteed overtime

However, if an employee has rostered overtime, which is common on seven-day continuous shift work, or there is a guarantee of overtime, eg the contract of employment prescribes a 45 hour week, or the employee receives an 'overtime allowance' each week, then payments related to this type of overtime would need to be included in the compensation in lieu of notice.

The important distinction between the two types of overtime in the scenarios mentioned is the WRAct requires a determination of what 'would' the employer have 'become liable to pay' if the notice period been worked by the employee, not what the employer 'may' have become liable to pay.

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Notice of termination of employment by employer
  

 

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