Payment in lieu of notice — elements?

Q&A

Payment in lieu of notice — elements?

An employer may choose to pay out an employee‘s notice on termination of employment rather than have the employee work out the notice. What are the elements that should be taken into account when calculating payment in lieu of notice?

WantToReadMore

Get unlimited access to all of our content.

An employer may choose to pay out an employee‘s notice on termination of employment rather than have the employee work out the notice. What are the elements that should be taken into account when calculating payment in lieu of notice?

This question was recently sent to our editorial team.

Q  Because of a downturn in our business, we have decided to make a number of positions redundant.

We have been through the consultation process with the affected employees and have indicated when the redundancies will occur.

However, because some positions involve direct contact with our customers, we intend to terminate these employees without notice, paying them the equivalent amount in lieu of notice.

The last time redundancies occurred (prior to Fair Work), the company had to pay all amounts as if the employee had worked out the relevant notice period.

Has the amount to be paid to an employee in lieu of notice of termination changed with the Fair Work Act 2009 and the National Employment Standards (NES)?

A  Under the Fair Work Act (s117(2)), each employee must be paid for the hours they would have worked during that period, at their ‘full rate of pay’ (s18).

Full rate of pay
 
‘Full rate of pay’ means the employee’s ordinary rate of pay including:
  • incentive-based payments and bonuses
  • loadings
  • monetary allowances
  • overtime or penalty rates
  • any other separately identifiable amounts.

The intention is to impose an obligation on the employer to pay either to (or for the benefit of or on behalf of) the employee, everything the employee would have been entitled to be paid had the period of notice been worked.

This would include superannuation contributions an employer would otherwise have been required to make, on behalf of the employee, to a superannuation fund.

It would also include amounts payable to an employee that the employee has agreed to under a permissible salary sacrifice arrangement, and include overtime rostered that would have been worked during the notice period.

SG legislation 

The Australian Tax Office has a superannuation ruling (SGR 2009/2) that includes payment in lieu of notice as part of ordinary time earnings for the purposes of calculating the Superannuation Guarantee (SG).
 


Need more help with people management?  
 
Australian Business Consulting and Solutions has a dedicated team of HR experts who can assist you with your specific people management issues and problems. If you would like a free and obligation-free initial assessment of what you require in terms of professional assistance, you can obtain more information from our website
 
Post details