Unfortunately, terminating employment is a reality of leadership.  Depending on the circumstances, a number of processes must occur but a key action that must happen in every instance is the payment of final entitlements on the last day of work for the departing employee.

A recent Federal Circuit Court decision is a significant warning to employers who don’t take this seriously. Failing to pay termination entitlements on an employee’s final day of work can result in significant penalties even if payment is only delayed by a short period of time.

Failure to pay is costly

In Jewell v Magnium Australia Pty Ltd (No 2), the employer dismissed an employee effective immediately on 21 April 2023. Believing themselves to be a small business and therefore not liable for redundancy pay, the company proceeded to pay accrued annual leave and notice pay in its next payroll run.

After the employee contested the classification regarding the size of the business, redundancy pay was also issued but it was months later in July. Despite the payments eventually being made, the Court found Magnium Australia in breach of the Fair Work Act for not making all due payments by the employee’s termination date.

Judge Mark Champion acknowledged the employer did not intend to underpay the employee, but highlighted that intention is not a defence to breaching payment timing obligations. The judge described the company’s approach as “careless,” especially since it failed to confirm its legal obligations prior to termination.

To be clear, there were three separate payments that were legally required to be made on the employee’s final day but weren’t:

• Final pay
• Accrued leave entitlements
• Redundancy entitlements

Despite evidence showing the intent was always to make the required payments, and court still took a dim view of it occurring later that legally required. As a result, the company was fined $6,200 per contravention which meant they were hit with fines totalling $18,600.

Key takeaways for employers

This ruling reinforces the critical point that termination entitlements must be paid no later than the employee’s final day of work. The payment must include:

• Outstanding wages
• Accrued but unused annual leave
• Payment in lieu of notice
• Redundancy pay (where applicable)

Late payments are no longer seen as mere “technical breaches” by the courts and employers can now expect penalties - even for relatively short delays.

It doesn’t matter how it happens….

An additional point to note is that it doesn’t matter how an employee departs.  Whether it is initiated by the business or if the employee resigns – all final payments MUST be made on the last day of employment. You can NOT hold them over to the next pay run even if it is more convenient.

Practical steps to protect your business

Compliance with employment laws is important – they are there to protect both employees and employers.  In order to stay on the right side of the law if you are in the difficult position of having to terminate employment, consider the following:

• Review payroll processes to ensure termination payments can be processed quickly.
  
  
• Use notice periods or gardening leave to allow time for calculation and processing.
  
  
• Confirm your business size and redundancy obligations before finalising any termination.
  
  
• If a termination is approaching, it may help to time the final working day strategically, so it aligns with pay cycle capacity.
  
  
• Seek advice when negotiating exit terms—statutory entitlements must still be paid on time, even if other terms are under discussion.

Final thoughts

This decision is a timely reminder that termination is not simply about managing behaviour, performance or even business needs – you must also tick all the boxes and get the administrative details right. Making termination payments on time is not just good practice, it’s a legal requirement that seems to be very much under the spotlight!

If you’re unsure whether your processes are compliant or would like assistance managing due process as it pertains to a termination, we’re here to help as always.