It’s All in the Timing – Final Pay on Termination of Employment

The timing of an employee’s final pay is critical to ensuring that an employer has complied with its obligations under the Fair Work Act 2009 (Cth).

Failure to make termination payments on (or before) the employee’s last day breaches the Fair Work Act, which can and attract significant penalties.

Payments must coincide with termination

Notice

If an employer pays an employee in lieu of notice rather requiring the employee to work their notice period, the notice payment must be made on or before the date the employment ends (s.117(2)(b) Fair Work Act). Payment of notice after termination breaches s.117(2)(b).

In Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022] FCA 481, the Federal Court confirmed that employers must pay employees in lieu of notice prior to termination in order to comply with the Fair Work Act.

Annual Leave

Accrued annual leave must be paid on or before the last day of employment (s.90(2) of the Fair Work Act).

Long Service Leave

The requirements for the payment of long service leave vary between states. In Victoria, an employee’s long service leave entitlements must be paid on the employee’s last day of employment (s.9 Long Service Leave Act 2018 (Vic)).

Failure to do so can attract substantial penalties, which apply each day the full long service entitlement remains outstanding.

Penalties for Failure to Pay on Time

Employers should be aware that penalties can apply for failure to pay termination payments on the final day of employment, even if the reason for the delay is because employers are not aware of their obligations.

In Jewell v Magnium Australia Pty Ltd (No 2) [2025] FedFamC2G 676, the court ordered the employer to pay penalties of $6,200 for each contravention, namely failing to pay notice, failing to pay accrued and unused annual leave and failing to pay redundancy on termination of employment, which totalled $18,600.

Key Tips for Employers

Employers should pay employees all salary and entitlements on or before their last day of employment. Payment within 7 days of termination or within the next pay run is not compliant and may attract significant penalties and lead to the termination being unlawful.

If you need assistance navigating your obligations, please contact Heather Richardson.