Do you pay your employees within 7 days following termination of their employment?
Probably not. In fact, you’re more likely to process final payment within your next payroll cycle to best suit the needs of your business.
While this may make perfect sense to you, the Fair Work Commission (FWC) doesn’t agree. They’ve changed the law around termination payments, which will affect businesses whose employees are covered by an award impacted by the decision.
The new changes mean you have to pay an employee no later than 7 days after the day on which employment ends. You’ll need to pay ALL wages and entitlements owed to the employee at the end of their employment within this 7-day period.
The exact wording of the new clause, included in the 89 modern awards affected by the change, is as follows:
Payment on termination of employment
(a) The employer must pay an employee, no later than 7 days after the day on which the employee’s employment terminates:
(i) the employee’s wages under this award for any complete or incomplete pay period up to the end of the day of termination; and
(ii) all other amounts that are due to the employee under this award and the NES.
(b) The requirement to pay wages and other amounts under paragraph (a) is subject to further order of the Commission and the employer making deductions authorised by this award or the Act.
Note 1: Section 117(2) of the Act provides that an employer must not terminate an employee’s employment unless the employer has given the employee the required minimum period of notice or “has paid” to the employee payment instead of giving notice.
Note 2: Paragraph (b) allows the Commission to make an order delaying the requirement to make a payment under clause X. For example, the Commission could make an order delaying the requirement to pay redundancy pay if an employer makes an application under section 120 of the Act for the Commission to reduce the amount of redundancy pay an employee is entitled to under the NES.
Note 3: State and Territory long service leave laws or long service leave entitlements under s.113 of the Act, may require an employer to pay an employee for accrued long service leave on the day on which the employee’s employment terminates or shortly after.
A list of the 89 modern awards impacted by this decision can be found at Attachment A in the Fair Work Commissions decision here.
You may not be aware that the FWC may impose financial penalties for a contravention of an obligation arising under a modern award. To ensure you’re aware of your obligations, you should refer to the relevant modern award or seek specific advice from the HR Assured team.
For more information on termination payments, clients should contact the HR Assured team. If you’d like more information about the benefits of becoming an HR Assured client, get in touch with us today for an informal chat. We have over 25 years’ experience providing expert advice on workplace relations and employment law.