Notice of termination: minimum notice and payment in lieu

Minimum notice (NES)

Section 117 of the Fair Work Act requires an employer to give written notice of the day of termination, and not to terminate before the end of the minimum period unless payment is made in lieu. The period is measured by continuous service at the end of the day notice is given, and the extra week for employees over 45 requires both the age and at least two years of service on that day. Notice runs from the day after it is given: notice given on a Monday for one week ends the following Monday. The employer can give notice by delivering it personally, leaving it at the employee’s last known address, or sending it by pre-paid post; email is accepted when the contract or established practice allows it.

Payment in lieu

The employer may end the employment immediately and pay the notice period instead, at the full rate you would have earned: base pay, allowances, loadings, overtime and penalty rates that would have applied. Your contract may provide longer notice (common for managers: 1 to 3 months); the longer of contract and NES applies.

The distinction between base rate and full rate matters here more than anywhere else in final pay. Redundancy pay is calculated on the base rate; payment in lieu of notice is calculated on the full rate of pay for the hours the employee would have worked, which the Act defines to include incentive-based payments and bonuses, loadings, monetary allowances, overtime and penalty rates, and any other separately identifiable amounts. A shift worker who would have worked night shifts during the notice period must be paid the night shift loading on the payment in lieu. An employee on commission is entitled to an estimate of the commission that would have been earned. The employer can also combine the two: require part of the notice to be worked and pay the balance in lieu.

Working out the notice

When notice is worked, the employment continues as normal: wages, leave accrual and superannuation continue, and the employee is entitled to take annual leave or personal leave during the period. Under most awards, an employee who has been given notice by the employer is entitled to one day of paid time off each week to look for work, on request, with proof of attendance at interviews if the employer asks. The employer can direct the employee not to attend work during the notice period, sometimes called garden leave, but must continue to pay the full rate. If the employee resigns during the employer’s notice period, the employer’s obligation ends on the employee’s termination date and the balance of the notice is not payable.

Notice from the employee

The NES do not impose a minimum notice on employees. The obligation comes from the award, enterprise agreement or contract. Most awards require the same scale as for the employer, minus the extra week for over-45s, and allow the employer to deduct up to one week’s wages from the final pay if the employee gives less than the required notice, but only from wages, not from leave or other entitlements, and only where the award expressly permits it. Award-free employees are bound by the contract; a contract that is silent implies reasonable notice, which courts have set at several months for senior long-serving staff. An employee who walks out without notice may be sued for damages in theory, but in practice the deduction of a week is the only consequence.

Who gets no notice

Casual employees, employees dismissed for serious misconduct, fixed-term contracts ending on their end date, daily-hire and some seasonal employees.

Serious misconduct is wilful or deliberate behaviour inconsistent with the continuation of the contract: theft, fraud, assault, intoxication at work, refusal to carry out a lawful and reasonable instruction, or conduct that causes serious and imminent risk to health and safety or to the business. Poor performance, lateness or a single argument do not qualify. An employer who dismisses without notice for alleged misconduct that does not meet the threshold owes the notice pay, and the dismissal may also be unfair. Probation is not an exception: an employee dismissed during a probationary period still receives the NES notice, even though they cannot bring an unfair dismissal claim before the minimum employment period of six months (twelve in a small business).

Tax and superannuation on notice

Payment in lieu of notice is an employment termination payment. On a genuine redundancy it is added to the redundancy pay and shares the tax-free limit; on any other termination it is a non-excluded ETP taxed at 32% under preservation age and 17% at or above it, subject to the whole-of-income cap. Notice that is worked is ordinary salary, taxed and superannuated as usual. Superannuation is not payable on payment in lieu of notice, because it is not ordinary time earnings, although some enterprise agreements require it. Where an employee is paid in lieu, employment ends on the day of payment, and that is the date that fixes years of service for redundancy pay and long service leave; an employer cannot use payment in lieu to cut off an entitlement that would have vested during a worked notice period, because the Act deems the notice period to count for that purpose in most awards.

Checking your notice pay

1. Work out your continuous service on the date notice was given and read the NES scale, adding a week if you were over 45 with two years’ service.
2. Compare with your contract and award; the longest period applies.
3. If paid in lieu, check that allowances, overtime and penalties you would have earned are included, not just the base rate.
4. Confirm the termination date on the payslip matches the end of the notice period or the day of payment in lieu.
5. Enter your details in the final pay calculator, which adds the notice weeks automatically for your age and service.