Issue 24 2020 - Hidden Traps for Employers – Payment of Notice in Lieu

Updated: Jun 28

Most modern awards (and some enterprise agreements) contain a standard provision for payment of wages on termination. This can create confusion for employers who elect to pay notice of termination in lieu, as there are separate obligations under the National Employment Standards (“NES”) for when that payment must be made.


When must notice in lieu be paid?

Under the NES, if notice is paid in lieu, it must be paid before the time that the termination takes effect. This comes from section 117(2)(b) of the Fair Work Act 2009 (Cth) (“Act”) which requires that an employer must not terminate an employee’s employment unless the requisite notice period has been given in writing or the employer “has paid” that notice period in lieu.

If notice is to be paid in lieu, a common practice for employers is to make the effective date of termination the date the notice is delivered, but the actual payment of the monetary value of the notice is paid into the bank at some later point. This results in a situation where the termination is effective but the employer has not actually already paid the employee the amount. This is a breach of the NES.

The solution is not to make the payment earlier. Making the payment before the day that the notice is delivered can cause other problems for the employer on the basis that the termination outcome was pre-determined or was otherwise operable before the employee was notified of it. This itself would be a breach of the NES as section 117(1) of the Act which requires that the termination date can’t be before the date notice is given.

Therefore, we recommend that if notice is to be paid in lieu, the written notice of termination should specify a future time for the effective date of termination. This only needs to be sufficient time to enable the payment in lieu of notice to be made after delivering the notice. This could be one or two business days.

What about other payments and accrued entitlements?

As the notice in lieu must be paid on or before the effective date of termination, the outstanding entitlements (eg accrued leave) will normally be paid at the same time. If a separate later pay run is to be made, that date should be specified but it must comply with any obligations in an award or enterprise agreement about payment of wages upon termination. For example, the clause 23.5 in the Clerks – Private Sector Award 2010 requires such payments to be made within seven days of the termination.

Require further information/assistance?

If you require further information or specific advice about your situation, please contact one of our consultants.