Understanding employee final pay obligations
Final pay is what the employer owes and must pay an employee, when the employer ends the employment arrangement. It is a lump sum payment to an employee who you have dismissed or ‘let go’ and is made up of all the outstanding entitlements that are still owed at the time of the termination. As a business owner, you need to be aware of the laws regarding employment termination. Lately, there have been a growing number of payment disputes so it is important to ensure you make the correct payments owed to your employees to avoid any legal issues.
Employees should be paid the following entitlements in their final pay:
• Outstanding wages, including penalty rates and allowances
• Accrued annual leave and annual leave loading entitlements
• Accrued or pro-rata long-service leave (if applicable)
• Redundancy pay entitlements (if applicable).
If an employee is entitled to annual leave and annual leave loading, then they must be paid out for both entitlements if their employment is terminated. This applies even if a clause in a modern award, agreement or contract expressly states that either entitlement is not payable. The Fair Work Act 2009, states that a terminated employee with a period of untaken annual leave must be paid what they would have been paid if they had taken that period of leave. This is part of the National Employment Standards so it cannot be excluded by any term in a modern award, agreement or other instrument that may provide for a lesser benefit.
If an employee believes they haven’t been paid out for all of their entitlements in their final pay, the Fair Work Ombudsman (FWO) can investigate. However, before it reaches this stage it is important to try and resolve the dispute with your former employee and to reach an amicable agreement. If this does not happen, the FWO can take action to make sure the employer pays out all the legal entitlements; this may be done by conducting a full wages investigation to determine whether you have complied with your business’ obligations. Other than the termination payment, the FWO may also choose to investigate:
• Whether your business is compliant with relevant awards and agreements such as payment of the minimum hourly rate, allowances, overtime and penalty rates, as well as leave and annual leave loading
• Pay and employment records
• Provision of pay slips.
It is important to make sure that your business is compliant when providing payments to employees on termination of their employment, as well as in the above areas for a variety of reasons. This is not only so your business is a fair working environment, but also to avoid potential fines, legal matters, back payments to employees and court ordered penalties. Non compliance with any of the above matters also puts your business at risk of a full payroll audit.
Here at The Quinn Group our experienced team of lawyers can assist you with all of your employment law needs. If you have any questions about a former employee’s final pay requirements and your business’ legal obligations submit an online enquiry for more information. Call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.