Termination Notice Requirements in Australia: What Employers Must Pay When Ending Employment

Terminating an employee's employment — for any reason, including resignation — triggers a set of legal obligations around notice periods and final pay that many small business owners get wrong. The consequences include back-pay liability, FWO complaints, and potential civil penalties.

This guide covers what you must do when employment ends.

Minimum Notice Periods Under the Fair Work Act

The National Employment Standards (NES) set minimum notice periods for employer-initiated terminations. These minimums apply regardless of what the employment contract says — a contract cannot provide less than the NES minimum.

Notice Periods for Employer-Initiated Terminations

| Employee's Period of Continuous Service | Minimum Notice | | --------------------------------------- | -------------- | | Less than 1 year | 1 week | | 1 year but less than 3 years | 2 weeks | | 3 years but less than 5 years | 3 weeks | | 5 years or more | 4 weeks |

Important addition: Employees who are 45 years of age or older and have been employed continuously for at least 2 years are entitled to an additional 1 week of notice on top of the base amount.

These minimums apply to all employees covered by the national workplace relations system — full-time, part-time, and (in some circumstances) regular casuals.

Notice for Fixed-Term Employees

Fixed-term employees whose contract expires are not "terminated" in the notice sense — the contract ends on its own terms. However, if a fixed-term contract is ended early by the employer, notice (or payment in lieu) may be required.

Notice for Casuals

Casual employees generally do not have notice entitlements under the NES — because they do not have a commitment to ongoing work. However, some modern awards provide notice entitlements for regular casual employees.

Payment in Lieu of Notice

Instead of requiring an employee to work out their notice period, you can pay the employee for the notice period and have them leave immediately. This is called "payment in lieu of notice" or "pay in lieu of notice."

Payment in lieu of notice must be calculated at the employee's full base rate of pay — not a reduced rate. It must include any allowances the employee would have earned during the notice period, but generally not penalty rates or overtime (unless the employee would have regularly worked those hours during the notice period).

Payment in lieu of notice is taxed as ordinary income (with some exceptions for genuine redundancy situations).

Minimum Notice Periods for Employee Resignations

Employees who resign are also required to give notice under the NES and their employment contract. The NES does not specify minimum notice periods for employees who resign — the notice period for resignation is determined by the employment contract or applicable modern award.

Typically, the contract specifies 2–4 weeks' notice for resignations. If an employee fails to give the contractual notice period, you can deduct the value of the missing notice from their final pay — but only if the employment contract explicitly provides for this deduction, and you have a legal basis to do so.

What Must Be Included in Final Pay?

When employment ends — for any reason — you must pay the employee all outstanding entitlements within the required timeframe.

Accrued Annual Leave

All accrued but unused annual leave must be paid out at termination. This applies regardless of why the employment ends — resignation, dismissal, retirement, or redundancy.

Annual leave payout is calculated at the employee's base rate of pay plus any applicable leave loading (typically 17.5% under most awards, or the penalty rates the employee would have earned if they had worked instead — whichever is higher).

Annual Leave Loading on Payout

Whether leave loading applies on the leave payout at termination depends on your applicable award or enterprise agreement. Most awards do require leave loading on termination payouts — but check your specific award.

Accrued Long Service Leave

If the employee has a long service leave entitlement under state legislation, it must be paid out on termination. The rules vary by state — in some states, pro-rata long service leave is payable if the employee has worked for more than 7 years; in others, the threshold differs.

Redundancy Pay (Where Applicable)

For genuine redundancy terminations in businesses with 15 or more employees, redundancy pay must be included in the final payout. See our separate article on redundancy for the scales.

Notice Pay

If you are terminating and paying the notice period out rather than having the employee work it, the notice payment must be included in the final pay.

Any Outstanding Wages

Any outstanding ordinary wages for hours worked must be included.

What Is Not Included

• Superannuation is not part of "final pay" per se, but the employer must ensure all super contributions for the employee's period of service are paid. Under the new payday super regime from July 2026, this should occur automatically on each payday.

When Must Final Pay Be Paid?

The required timeframe for paying final pay varies by state but must be paid "as soon as practicable" after employment ends. Most states specify timeframes of 1–7 days. Check your state's requirement.

Some modern awards specify that final pay must be made on the last day of employment. Check the applicable award.

Failure to pay final pay on time is a breach of the Fair Work Act and can result in a civil penalty claim in addition to the underlying entitlement claim.

Summary Dismissal: No Notice Required

For serious misconduct — genuine serious misconduct such as theft, physical violence, or dangerous behaviour — you can dismiss an employee without notice ("summary dismissal"). However:

• You must genuinely believe on reasonable grounds that serious misconduct has occurred
• Even in summary dismissal, you must pay out all accrued leave entitlements (you do not forfeit the employee's accrued leave by dismissing for serious misconduct)
• You must follow procedural fairness requirements appropriate to the circumstances

Dismissing an employee without notice for conduct that does not constitute serious misconduct exposes you to an unfair dismissal claim and a wage theft claim for the notice period not paid.

Payment Summaries and Tax

When employment ends, you must include the employee's earnings and termination payments in your STP reporting. The employee accesses their income statement through myGov to lodge their tax return.

Lump sum payments on termination have specific tax treatment:

• Annual leave on termination: Taxed as ordinary income (at marginal rates)
• Long service leave on termination: May have special tax treatment depending on when the leave accrued
• Redundancy pay: Genuine redundancy payments have a tax-free component up to specified limits

The ATO's tax tables and guidance on termination payments should be consulted for correct withholding.

Common Mistakes at Termination

1. Not paying out annual leave — the most common and easily discovered breach
2. Forgetting leave loading on the annual leave payout
3. Missing long service leave — particularly for long-serving employees
4. Paying notice at the wrong rate — using the base rate without applicable allowances
5. Late payment of final pay — paying weeks after the last day of employment
6. Dismissing without notice for non-serious misconduct — and not paying the notice period

How Reguladar Helps

Termination obligations are a significant source of compliance risk for Australian small businesses. Reguladar surfaces your employment termination obligations based on your state, applicable award, and employee tenure — so when a termination occurs, you know exactly what must be paid and within what timeframe.

Know your termination obligations before the difficult conversation. Start your free compliance check at Reguladar and get your complete employment compliance picture today.