5 Top Termination Questions

Q: What rate of pay do I apply to a termination payment?

A: Different components of a termination pay will be treated differently.

Annual Leave: this is paid at the same rate that the employee would have received had they taken the annual leave. If the employee receives an allowance (such as a car allowance) when taking the annual leave, then it is also to be included in the rate when paid on termination.

Annual leave loading: if the employee received annual leave loading when taking annual leave, then the leave loading is also paid on termination.

Long Service leave: Like annual leave, use the same rate that would have been paid had they actually taken the leave. Check the appropriate state legislation for rules about including bonus and commission payments and for averaging hours.

Q: An employee has a Variation to Withholding. Can we apply it to their termination pay?

A: Normally the variation does not apply to the termination.

You can only apply the variation to the termination if the variation specifically includes termination payments.

Most commonly they only apply to “salary and wages”, so you cannot apply it to the termination.

The rational is… when the employee applied for the variation they said they earn say $70,000, so that is what the ATO use to determine the percentage. The ATO had not factored in a lump sum payment on termination so it is excluded from the variation.

Q: What happens if we want the employee to finish up straight away?

A: As an employer you have the option to require employees to work out their notice or you can pay them in lieu of that notice. For example, if an employee was entitled to 1 week of notice, but you asked them to leave immediately; they will receive the one week payment in lieu of notice.

Q: Can an employee take leave during their notice period?

A: Yes, an employee can have access to their leave during their notice period, and this can form part of their notice period.

For instance, an employee may request to take annual leave to cover some or all of their notice period. Upon agreement with the employer, this is fine, as long as the employee isn’t made to take annual leave. If you need the employee to work the notice period and handover to someone else then you could refuse their request to take annual leave.

An employee may also have pre-approved leave which falls during the notice period. The employee is still entitled to take this leave, and it may be considered unreasonable to prevent them from taking this leave. Especially if they have a holiday planned!

Employees can also fall ill during their notice period and need to take personal / carers leave. The employee would still be required to provide notice of their leave and evidence if requested.

Q: What happens if the employee does not give sufficient notice or if they just do not want to work out their notice?

A: An employee may request that the notice period be waived. This can be mutually agreed between the employee and employer and the employee would go off on their happy way.

Some Awards, Enterprise Agreement or contracts may allow the employer to deduct monies from the employee’s final pay, equivalent to the notice not given.

An example of this is in the Banking, Finance and Insurance Award 2010:

If your award or EBA does not have one of these clauses then you can’t deduct from the employees final pay.

Here are the steps you should follow when deducting any money for failing to provide notice:

Step 1 – Work out what the net amount of the employees termination pay is (without the deduction of notice)

Step 2 – Work out the value of the notice period not given in dollars. We are interested in the gross amount (not net)

Step 3 – Deduct the gross amount of the notice not given from the net amount of the final payment.