Employee Resignations Guide for Employers

Saying goodbye to an employee doesn't have to be a headache. This guide empowers business owners with the knowledge and tools to handle employee resignations effectively.

Employee resignations and notice periods

An employee resignation means they're voluntarily ending their employment, and it's important for business owners to handle this process smoothly. This guide explains everything you need to know about notice periods, entitlements, and best practices for managing employee exits.

Keep these points in mind when an employee resigns

  • The employee must formally initiate the resignation process by providing a written notice, typically through a resignation letter or email. This document should clearly express their intention to resign and their chosen last day of employment.
  • Their notice period is a mandatory time frame is important for ensuring a smooth transition. It usually begins the day after the written notice is received and concludes on the employee's last working day. Remember, during this period, the employee typically remains employed and fulfills their usual duties unless alternative arrangements are mutually agreed upon.

Paying out the notice period

If an employer chooses to pay the employee for the remaining notice period instead of having them work it, their employment ends immediately on the payment date. This means they won't continue accruing entitlements like annual leave during this period. This option can be beneficial for both parties in certain situations, such as when the employee has secured a new job with an earlier start date or to avoid potential disruptions during the handover process. However, it's essential to ensure legal and contractual obligations are met regarding the payment amount and timing.

Working the notice period

If the employer doesn't pay out the notice period, the employee remains employed and fulfills their usual duties until their last working day. This means they continue to accrue entitlements like annual leave as normal, and their employment officially ends on that final day. This approach allows for a smoother handover of responsibilities and ensures the employee completes any essential tasks before departure.

Here are some things for employers to consider when an employee tenders their resignation:

  • Notice period requirements that are covered within employee's contract, award, or registered agreement determines the required notice period they must give. Getting familiar with these specifics are important to avoid potential disputes or legal implications.
  • Wage deductions, where employers withhold wages from an employee's final pay for insufficient notice can only happen under specific circumstances. These often include written consent from the employee, legal permission (court order or Fair Work Commission), or specific allowances within their award or registered agreement. Remember, even authorised deductions cannot solely benefit the employer or be unreasonable, and they cannot apply to employees under 18 without parental consent.
Employee Resignations - Employment Compass

Providing and negotiating notice periods

Beyond understanding their minimum notice period obligations, both employees and employers have options on the length of notice and and working out the notice period.

Employees can provide more notice than stipulated in their award, contract, or registered agreement. On the other hand, if employees wish to leave earlier than the required notice period, they can discuss a mutual agreement with the employer to waive some or all of it. This could involve negotiating a financial settlement or completing essential tasks beforehand.

Employers can agree with the employee to work a shorter notice period than required, as long as both parties consent freely and in writing. Avoid pressuring the employee or offering unfavorable terms, as this could lead to potential unfair dismissal claims.

While you may prefer the employee to leave sooner, remember that unilaterally shortening their notice period constitutes termination of their contract. This carries legal risks and requires following proper termination procedures, including providing valid reasons and potential severance pay.

Calculating final payments for departing employees

Saying goodbye to an employee often comes with some financial responsibilities. What exactly do you owe them in their final payment and when should it be paid?

You should check your employee's award, contract, or registered agreement as they may specify a timeframe the business is required to action the final payment. Best practice generally is. aying within 7 days of their last day or on the next scheduled payday if there's no specific timeframe mentioned.

What is included in the final payment?

  • All outstanding wages including their regular pay, penalty rates (if applicable), and allowances.
  • Accrued and unused annual leave which is converted into a monetary value and added to their final paycheck.

An any additional entitlements (if applicable), including:

  • Annual leave loading when employees are entitled to an extra payment on top of their accrued leave.
  • Depending on the state or territory, they may be eligible for a portion of their accumulated long service leave.
  • If their position is being made redundant, they might receive a redundancy payment based on their service length.
  • If they didn't work their full notice period, you may owe them payment in lieu of notice for the remaining days.

Personal leave or carer's leave in not included unless explicitly stated in their award, contract, or registered agreement, as these leaves are not typically paid out upon termination.

Handling the resignation process

When an employee resigns, a smooth transition is important for both the business and the employee. Encourage the employee to complete key tasks and projects before their departure to support the handover and ensure business continuity. And where possible, discuss training their replacement to ensure essential knowledge and skills are transferred and kept within the business.

On or before their last day, request the employee to return all company property, including:

  • Keys, documents, and information technology equipment.
  • Any outstanding petty cash they hold.

Ensure all confidential files, both hard copy and electronic, are removed from their personal devices and collect any necessary access codes or passwords for computer files to maintain data security.

Managing employee file updates after resignation

When an employee resigns, updating their employee file accurately is a requirement under the Fair Work Act 2009. Ensure you store their resignation letter within their file for future reference, and record details of their notice period and the specific circumstances surrounding their employment termination. It is important to maintain confidentiality and restrict access. Generally only the employee, their employer, and authorised payroll employees should have access. Upon request, employers are required to provide copies of these records to the employee, or the Fair Work Ombudsman.

If you need further advice on managing employee exits, their entitlements and final payments, Employment Compass can provide assistance. Call our 24/7 Employer Assist Line at 1300 144 002 for more information.

Frequently asked questions

How much notice does an employee have to give me?

The minimum notice period depends on the employee's contract, award, or registered agreement. Familiarise yourself with these specifics to avoid disputes.

What should I do when an employee resigns?

Encourage them to finish critical tasks and consider training their replacement. Request returning company property and confidential files securely.

Can I negotiate a shorter notice period with the employee?

Yes, with their written consent. But avoid pressure or unfavorable terms, as this could lead to unfair dismissal claims.

What happens if the employee doesn't give enough notice?

You can only deduct wages for insufficient notice under specific circumstances, like written consent or legal permission. Remember, deductions have limits and cannot solely benefit the business.

When do I need to pay the final salary?

Check the employee's contract or agreement for specific timeframes. Otherwise, aim for within 7 days of their last day or the next payday.

What's included in the final pay?

All outstanding wages, accrued annual leave, and potentially additional entitlements like annual leave loading, long service leave, redundancy pay, or payment in lieu of notice.

Do I need to pay for unused sick or carer's leave?

No, unless explicitly stated in their contract or registered agreement.

How do I update their employee file?

Store their resignation letter and details of their notice period and termination. Maintain confidentiality and only share records with authorised employees or upon request.

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