Final pay.

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What Is Final Pay?

Final pay is monies owed to an employee whose employment has come to an end.

Final pay includes the payment of outstanding wages, any accrued entitlements such as annual leave and annual leave loading, and other payments such as long service leave, payment in lieu of notice, and redundancy pay.

Some awards require you to give a departing employee their final pay within 7 days of their employment ending. Some awards and registered agreements may provide a longer timeframe.  Others provide for a shorter timeframe.

When Does Final Pay Have to Be Paid?

As an employer, it is your responsibility to comply with the terms of the relevant award or registered agreement in regards to the final payment.

In most cases, employers are not required to issue final payment immediately after an employee’s resignation however this would depend on the award that covers the employee.

How Long Does an Employer Have to Pay out Final Pay?

Employers typically have 7 days from an employee’s last day of employment to issue final pay. Some awards and registered agreements may allow for a longer final payment notice.

If no timeframe is stipulated, it is best practice to pay out final pay either on the employee’s last day of work or their next scheduled payday. In some cases, both the employer and the departing employee may agree – in a written final payment letter – to a final pay due date.

Employers should note that some awards have a much shorter timeframe than 7 days for final payment. For example, the Manufacturing and Associated Industries and Occupations Award 2010 states; On termination of employment, wages due to an employee must be paid on the day of termination or forwarded to the employee by post on the next working day.

There are a few other awards, for example the Electrical, Electronic and Communications Contracting Award 2010 and the Building and Construction General On-site Award 2010, that require immediate final payments. Employers should refer to the respective awards or consult a workplace relations specialist to be certain of the exact timeframe for issuing final payments.

How Much Notice Does an Employee Have to Give When Resigning?

When an employee resigns, they may be required to give notice. The amount of notice they are required to give (if at all) should be stated in their award, registered agreement, or employment contract.

Casual employees are not required to give notice.

Once an employee has given notice to resign, you may choose to either:

  • let the employee work out the notice period, or
  • tell the employee to leave early and pay them in lieu of notice instead

When you calculate pay in lieu of notice, be sure to include the following items as part of their final pay:

  • overtime worked
  • penalty rates
  • long service (if applicable)
  • loadings i.e. leave loading
  • monetary allowances
  • incentive-based payments and bonuses
  • any other separate identifiable amounts

Does Sick Leave Ever Get Paid Out?

In most cases, you do not have to give a departing employee a sick leave payout. There are, however, some exceptions to this rule.

An employee may be entitled to cash out sick leave during their employment if indicated in their award or registered agreement and if certain conditions are met:

  • an agreement is made in writing for the leave to be cashed out
  • the employee has at least 15 days of unused paid sick or carer’s leave left after cashing out
  • employee is paid the full amount they would have been paid if they actually took the leave

You are not required to cash out sick and carer’s leave if the employee does not meet the criteria above. There are, however, exceptions to this depending on the employee’s awards. Certain modern awards have specific provisions that may not fall within the conditions bulleted above.

Annual Leave on Termination

When an employee ceases employment, you must include all unused annual leave as part of their final pay. The annual leave itself is paid at the employee’s current base pay rate for all hours of leave the employee would have taken.

However, this does not include additional payments such as:

Some awards, however, may require the ordinary rate to be paid out instead of the base rate. To be certain of the exact requirements for cashing out annual leave for an employee, it is crucial to refer to the criteria stated in the respective award.

Leave loading may also be required to be paid out. However, whether or not such payment is applicable, depends on the applicable, Award, Registered Agreement and Contract.

Employsure can advise you on all aspects of final pay for your departing employees. For peace of mind, please call our 24 hour Advice Line now on 1300 207 182.

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