Under subsection 117(2) of the Fair Work Act 2009, where payment in lieu of notice of termination is made, the employee is entitled to be paid at least the amount the employer would have been liable to pay to the employee at the full rate of pay for the hours the employee would have worked had the employment continued until the end of the minimum notice period.
In practice, the amounts that should be included where payment in lieu of notice of termination is made are as follows:
- Payments should only include amounts that would have been included in an employee's weekly, fortnightly or monthly pay packet had the employee worked until the end of the minimum notice period. However, where a particular entitlement is paid on a longer term basis (e.g. quarterly or annually), a proportionate amount should also be included in the payment in lieu of notice even if payment of that amount would not have fallen due during the notice period.
- Essentially, such an entitlement means wages or salary, anticipated overtime and/or shift allowances, and other allowances such as 'higher duties allowance' (where an employee is temporarily assigned duties at a higher classification level and this assignment would have continued), clothing and site allowances as well as amounts that are normally paid directly to third parties on behalf of the employee will be payable.
- This would include the employee's superannuation contributions that are usually paid to a superannuation fund on behalf of the employee (which form part of the employee's salary), plus any other sums that are included in the employee's remuneration that are paid to third parties (for example under salary sacrifice arrangements).
However, payment in lieu of notice of termination should not include employer superannuation contributions payable by agencies.
In addition, as leave does not accrue after a person ceases employment, other entitlements such as annual leave or long service leave should only be calculated up until the actual date that the termination of employment takes effect (as specified in the notice of termination).
Salary increase between date of termination and end of required period of notice
In circumstances where an employee is terminated and receives payment in lieu of notice of termination, and a relevant industrial instrument or other workplace arrangement that applied to the employee before their termination provides for an increase in salary in the period between the actual date the employee's employment is terminated and the end of the required period of notice, then, unless the relevant industrial instrument provides otherwise:
- the salary increase is only relevant in calculating the person's salary for the balance of the notice period (i.e. the period between the date of effect of the salary increase and the end of the notice period)—the same principle applies to any other increases (such as to allowances or loadings) that would have become payable had the employee continued to work until the end of the notice period; but
- the pay rise is not relevant in terms of calculating the person's entitlements to pay in lieu of unused leave credits—entitlements should be calculated using the salary rate that applies at the actual date that the termination of employment takes effect.
For example, an employee who has an entitlement to four weeks notice is paid in lieu of notice and has their employment terminated on 15 June. A pay rise then comes into effect on 1 July. In that situation, the person would be entitled to have their notice paid at the higher rate from 1 July until the notice period would have expired, on say 12 July. However, this pay rise would have no effect on the employee's other entitlements as calculated at the actual date of termination (15 June).
If, however, the employee works through the notice period (or part thereof) and remained in employment on 1 July, then he/she would be eligible to have all their accrued entitlements calculated on the basis of the higher rate of pay and would continue to accrue entitlements until their employment was actually terminated. There is no entitlement to payment in lieu of notice where the employee works through the notice period.
On termination an employee will be entitled to be paid for unused annual leave and (where eligible) long service leave credits, calculated in accordance with the relevant legislation/industrial instrument, up until the date of effect of termination of the employee's employment (i.e. the date specified in the notice in writing of termination of employment under section 29 of the Public Service Act 1999).
Payment in respect of unused long service leave credits
The amount payable in respect of long service leave on termination of employment is governed by sections 16, 17 and 21 of the Long Service Leave (Commonwealth Employees) Act 1976 (LSL Act).
The LSL Act provides that the amount payable upon the termination of employment of an eligible employee must be calculated by reference to the salary that applied to the person on the day immediately before the person ceased to be an employee. No provision is made in the LSL Act for taking into account an increase in salary that occurs after the actual date of termination but before the end of the required period of notice.
Payment in lieu of other amounts
Payment in lieu of other entitlements can be made to employees in certain circumstances-for example:
- an accelerated separation payment made to an excess employee on termination of employment, which, in addition to normal redundancy pay entitlements, involves an additional payment for the balance of the consultation and/or consideration periods (in addition to the notice period) being paid as a lump sum; or
- the balance of the retention period is paid out as a lump sum payment.
In these circumstances, the Australian Public Service Commission’s policy is that the calculation of these lump sum payments should be worked out on the same basis as payment in lieu of notice of termination of employment. In particular, the calculation of the payment should not include amounts for pro rata annual leave or long service leave that would have accrued had the person remained as an employee during the relevant consideration, consultation or retention periods, unless a specific provision of an industrial instrument or other workplace arrangement that applies to the employee provides otherwise.