When a decision to terminate employment with pay in lieu of notice is made, you need to determine: 

  • when is the actual date of termination? 
  • when are leave entitlements calculated up to?
  • are allowances included? 
  • do public holidays extend the notice period? 

Some common questions that arise are answered below. 

Q1: If an employee is paid out their notice in lieu, does the termination date still remain the date of finishing work, or is it projected to the end of the notice period, eg four weeks later?   

A: The date of dismissal is the date of finishing work, but the employee must be given notice of termination, in writing. Failure to do so may be in breach of the Fair Work Act 2009 (s117) but may not necessarily mean a termination of employment has not occurred. Generally, termination of employment is considered not to occur until it is properly communicated to the other party. This could include notice being given verbally (although this would not satisfy the Fair Work Act where the employer gave verbal notice). 

Q2: Is an annual leave balance calculated to the end of the equivalent notice period or only until the last day of work? 

A: Annual leave is calculated to the last day of work. The Fair Work Act provides that if the employment ends and the employee has untaken paid annual leave, the employer must pay the amount that would have been payable to the employee had they taken that period of leave. Payment in lieu of notice is calculated at the employee’s “full rate of pay” (see answer to Q3), which includes “any other separately identifiable amounts”. While this question has not been the subject of judicial review, it appears that annual leave would be considered an entitlement, rather than being considered part of an employee’s rate of remuneration. 

Q3: If an employee received a weekly allowance, is this included in the payment in lieu of notice? 

A: It would be included in the payment in lieu amount because the amount to be paid to the employee is at the “full rate of pay” for the hours the employee would have worked had the employment continued until the end of the minimum period of notice. Section 18 of the Fair Work Act defines “full rate of pay” to include the following: incentive-based payments and bonuses; loadings; monetary allowances; overtime or penalty rates; any other separately identifiable amounts. “Any other separately identifiable amounts” could include amounts otherwise payable to an employee that the employee has agreed, under a permissible salary sacrifice or other arrangement, to forgo in order to receive other benefits.  

Q4: If a public holiday falls within the period covered by the payment in lieu of notice, do we have to pay the employee an additional day of notice? 

A: No. Public holidays do not extend the period of notice if it had been worked by the employee; consequently it would not add one day’s pay to the amount in lieu of notice.