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When an employee resigns, or you terminate an employee, you owe them certain contractual and legal entitlements. However, knowing what entitlements you owe your outgoing employees can be unclear. Hence, this article outlines what entitlements you owe your employees upon termination or resignation.
What Are Your Contractual Obligations Regarding Termination or Resignation?
The employment agreement is the cornerstone of any employer-employee relationship. Hence, in the instance where your employee resigns, or you terminate them, there are some obligations in the employment agreement that you must fulfil.
Notice Period
As an employer, you must give your employees notice when terminating their employment. The employment contract should specify how much notice you should give when terminating. However, if there is no employment contract, you should comply with the minimum notice periods in the Fair Work Act below or refer to any applicable enterprise agreement or modern award that applies.
| Period of Continuous Service | Minimum Notice Period |
| One year or less | One week |
| More than one year but less than three years | Two weeks |
| More than three years but less than five years | Three weeks |
| More than five years | Four Weeks |
You should note that employees are entitled to an extra week of notice in addition to the above periods if they:
- are over 45 years of age; and
- have completed at least 2 years of service with their employer.
An award, employment contract, enterprise agreement or other registered agreement can also set out more extended minimum notice periods.
Payment During Notice Periods
If you do not want your employee to work during their notice period, you can opt to pay the employee in lieu of notice. However, f you require the employee to work during the notice period and they refuse to do so, they are not entitled to payment for that period. If an employee wants to leave during their notice period, you can reduce it with their agreement.
Some awards also allow employers to deduct employees’ wages when they have not complied with notice requirements. Nevertheless, an employer can only deduct pay from an employee’s wages under an award that permits this. The employer cannot reduce other entitlements they owe the employee, such as accumulated leave and over-award payments.
What Are Your Legal Obligations Regarding Termination or Resignation?
The law also places additional obligations on you when an employee resigns, or you terminate the employee.
Entitlements
When the employment relationship ends, you must provide a final payment notice outlining the pay and entitlements you owe the employee. You must ensure you send the final pay promptly and accurately. Generally, employers send the final payment to employees seven days after their final day with the company.
Upon termination of employment, you must pay out:
- unpaid wages, including penalty and overtime rates;
- expense claims;
- accrued annual leave entitlements;
- accrued long service entitlements as necessary;
- any payments in lieu of notice; and
- allowances.
Notably, you do not have to pay out personal or carers leave upon termination.
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What Are Your Other Obligations Regarding Termination or Resignation?
Your employee may ask you to complete an employment separation certificate. This form requires you to provide information to assess your former employee’s claim for income support payments. Although it is not compulsory to complete this form, it can benefit your employee when applying for benefits.
Additionally, your employee may request that you provide a reference. While you are not required to provide one, this would assist in maintaining an amicable relationship. Typically a reference will include the employee’s dates of employment, their role, duties and responsibilities and overall contribution to the business.
Whether it’s your first hire or your fiftieth, this guide will help you understand the moving parts behind building a high-performing team.
Key Takeaways
Employees are legally and contractually entitled to certain payments and notice periods when they resign, or you terminate them. This includes:
- notice of termination; and
- payment of any accrued entitlements (excluding personal/carers leave).
Complying with your contractual and legal obligations will ensure a seamless termination of the employment relationship.
If you need help understanding your obligations regarding termination or resignation, our experienced employment lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
The law does not require you to give notice when terminating an employee for serious misconduct. However, you must pay all outstanding legal entitlements of the employee, such as time worked, annual leave, and long service leave.
You should first look at the employment contract to determine the notice period. In the absence of a contract, you should comply with the minimum notice period (in the table above) or look to any applicable modern award or enterprise agreement for a notice period that could apply.
In some circumstances, you can deduct your employee’s final pay. For example, if they still need to provide adequate notice, a term in an industrial instrument allows it. However, this depends on the provisions in the applicable modern award or enterprise agreement.
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