Processing the final pay and getting it right

When  an employee’s tenure with your business ends, it’s important to get it right in regard to dismissal, notice and final pay.  Therefore, there are a number of things to consider with the final employee pay, your obligations, and how to make sure everyone gets what they’re owed.

Staff employment can end for many different reasons: from resignation, to redundancy or even dismissal.

Small Business Society often receives questions about the legalities of processing final payments.

However it ends, it’s important to follow the rules about dismissal, notice and final pay.

Often this can be more complex than it first appears. This final pay often has to take into account any reimbursements for uniforms or other company property, some repairs to company property, claw-backs for loans and training programs.

It is important to note that an employer can only deduct money if the employee acknowledges and agrees in writing and it’s principally for their benefit.

The first thing to consider in the manner in which the employee is leaving: People have different rights and obligations when their role is made redundant.

When we talk about the ‘final pay’, we’re talking about is what an employer owes an employee when their employment ends.

Not all final pays are straightforward. It’s important to understand that any deductions an employer requires from the final pay can only be withheld from wages, and not from leave entitlements – which must be paid out.

If the amount exceeds the wages then it is best to seek expert advice about how to proceed, as circumstances may vary the advice.

The Fair Work Act has guidelines about what to include, timeframes for payment and what deductions can be made.    

Most awards require employers to pay employees their final payment within seven days of the employment ending. Employment contracts, enterprise agreements or other registered agreements can also specify when the final pay must be paid.

If an employee’s award, contract or agreement doesn’t say when an employee’s final pay must be paid, then it’s best practice for an employee to be paid on their last day of work or on the next scheduled payday.

Final pay payments

An employee should be paid the following entitlements in their final pay:

  • outstanding wages for hours they have worked, including penalty rates and allowances
  • any accumulated annual leave, including annual leave loading if it would have been paid during employment

Also, in certain situations, employees will be owed:

  • accrued or pro rata long service leave
  • payment in lieu of notice
  • redundancy pay

Final pays can be complex and time consuming, but it’s imperative employers get it right, not just to cover their legal obligations, but also to ensure the employee’s final experience with the business is a good one – who knows, maybe one day they will work for you again, or refer a friend!

For specialist help managing final pays, contact  Small Business Society .

The information provided in this document is for your guidance only and is general in nature. It does not constitute as legal advice. It is the responsibility of the individual to seek legal advice where required.

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About Kate Tongue

Kate Tongue is the founding Director of Small Business Society.

She is a qualified and experienced Human Resources professional with more than 10 years of experience across the private and public sectors.

Her particular interest and experience is in managing the employee life cycle, delivering process improvements, and Human Resource strategy.

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