Payment in lieu of notice: termination date

Q&A

Payment in lieu of notice: termination date

When employment is terminated with payment in lieu of notice, common queries relate to: when is the actual date of termination; when are leave entitlements calculated up until; are allowances included; and do public holidays extend the notice period?

WantToReadMore

Get unlimited access to all of our content.

When employment is terminated with payment in lieu of notice, common queries relate to: when is the actual date of termination; when are leave entitlements calculated up until; are allowances included; and do public holidays extend the notice period?
 
A question relating to all these issues was recently sent to our Ask an Expert service.
 
We have decided to terminate a manager for poor performance. Because of the senior nature of the employee’s role within the organisation, it has been decided to terminate his employment without notice. Based on the continuous years of service with the organisation, the employee will be receiving four weeks pay in lieu of notice, based on the scale prescribed in the Fair Work Act 2009. However, we are not sure what amounts to include in the amount to be paid in lieu of notice. In this particular case, there are four questions relating to the notice provisions. These are:
Q1: If the employee is paid out his notice in lieu does the termination date still remain as the date he finishes or is it projected to the end of the notice period (ie if, say, he finishes work on 27 September and is paid out his four weeks notice, does this make the termination date 25 October?
 
Q2: Specifically, is his annual leave balance calculated to the end of the equivalent notice period or only until his last day of work?
 
Q3: If he is receiving a weekly allowance, is this included in the payment in lieu of notice?
 
Q4: If a public holiday falls within the period covered by the payment in lieu of notice, do we have to pay the employee an additional day of notice?
A  Because these questions refer to various issues relating to notice, they are answered separately.
 
Answer to Q1: the date of dismissal is 27 September, with the following consideration: the employee must be given notice of termination, in writing. Failure to do so may be in breach of the Fair Work Act (s117), but may not necessarily mean a termination of employment has not been effected. Generally, a termination of employment is considered not to take effect unless and until it is properly communicated to the other party. This could include notice being given verbally (although this would not satisfy the Fair Work Act where verbal notice is given by the employer).
 
Answer to Q2: Annual leave is calculated to the date the employment ends (27 September). The Fair Work Act provides that if the employment ends and the employee has untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave. Payment in lieu of notice is calculated at the employee’s ‘full rate of pay’ (see answer to Q3), which includes ‘any other separately identifiable amounts’. While this question has not been the subject of judicial review, it would seem that annual leave would be considered an entitlement, rather than being considered part of an employee’s rate of remuneration.
 
Answer to Q3: The weekly allowance would be included in the payment in lieu amount because the amount to be paid to the employee is 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 Fair Work Act (s18) to include the following: incentive-based payments and bonuses; loadings; monetary allowances; overtime or penalty rates; any other separately identifiable amounts. ‘Any other separately identifiable amounts’ could include amounts otherwise payable to an employee that the employee has agreed, under a permissible salary sacrifice or other arrangement, to forgo in order to receive other benefits.
 
Answer to Q4: No. Public holidays do not extend the period of notice if it had been worked by the employee, consequently it would not add one day’s pay to the amount in lieu of notice.
 


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