What is a notice period?
In Australia, both employers and employees typically have an obligation to provide advance notice when ending employment. This helps ensure a smooth transition and protects the rights of both the employee and the business.
When an employee resigns, they might be required to submit written notice to the employer, usually through a letter or email. While "award-free" employees (not covered by a specific award or agreement) might not have a legal obligation to give notice, most employment contracts outline an expected timeframe. This notice period starts the day after the employee notifies your employer and ends on their last day of employment.
When terminating an employee's employment, you generally need to provide written notice with a minimum timeframe or offer payment in lieu of notice. Exceptions exist for casual workers, seasonal workers, fixed-term contracts ending naturally, daily hires in specific industries, and employees dismissed for serious misconduct.
Under normal circumstances, employees are expected to work their notice period after resigning. However, there are instances where the employer may opt to end the employment relationship earlier. In such cases, the employer and employee can reach an agreement where the employer pays the employee for the remaining notice period instead of having them work it. This situation is referred to as "notice not worked."
Employee notice and deductions
For employers, understanding employee notice requirements and the ability to deduct pay for missed notice periods can be a complex.
Employees are required to provide a notice period when they resign. The duration of notice hinges on a few factors including the award, employment contract or registered agreement as it will state the required notice period. In some cases, relevant awards might authorise deductions from wages if the minimum notice isn't provided. It's important to remember that casual employees typically don't have a formal notice requirement.
Legally deducting pay for missed notice periods requires strict adherence to specific conditions:
- The employee must provide their written agreement, and the deduction should primarily benefit them,
- The deduction is permitted under law, court order, or by the Fair Work Commission, or
- The employee's award, or
- their registered agreement (with their consent).
While many awards allow deducting up to one week's wages from an employee who does not provide the minimum amount of notice, it's important to remember that this applies solely to wages, not other entitlements like accrued leave.
Even if agreements allow deductions, there are situations where they are prohibited:
- The deduction primarily benefits the employer, not the employee, and is deemed unreasonable under the circumstances, or
- The employee is under 18 years old, and their parent or guardian hasn't provided written consent for the deduction.
When an employer ends an employee's employment, they often waive the remaining notice period but still owe the employee pay for that time. This payment, known as "payment in lieu of notice," compensates the employee as if they had worked. However, employers must still provide written notice of the employee's last day, with the required timeframe depending on their service length.
Employee notice requirements
Although the National Employment Standards (NES) don't require employees to give notice when resigning, it's still essential to understand employee obligations. An employee's contract, registered agreement, or award typically outlines the expected notice period for full-time and part-time employees. However, the exact requirements depend on the terms of these documents and your type of employment.
Unlike full-time and part-time employees, casual employees generally don't have to give notice when resigning. Similarly, employers typically aren't required to provide notice when terminating a casual employee's employment. This reflects the "ad hoc" nature of casual work arrangements.
However, it's important to note that employers should still inform casual employees of their termination. While notice isn't mandatory, it's good practice to explain the reason for ending the employment relationship and consultation will be required under the relevant award or registered agreement.
When an employee submits their resignation, you have several options for managing the notice period:
- Let the employee work their full notice period as outlined in their contract, award, or agreement.
- Allow the employee to finish earlier and pay them for the unexpired notice period instead. This payment, known as "payment in lieu of notice," should equal the exact amount they would have earned by working the remaining period.
- Combine both options by having the employee work part of their notice period and paying them for the remaining portion.
Regardless of the chosen option, the employee's final payment must reflect the full wages they would have earned if they had worked the entire notice period.
Notice periods and termination letters
When dismissing an employee, you generally need to provide them with written notice in advance of their last day. This notice period can be fulfilled by either letting them work the full period or paying them in lieu of notice. You do not have to give notice to:
- Casuals, seasonal workers, and fixed-term contract employees whose contracts expire don't require notice.
- Daily hire workers in specific industries like construction or meat processing are also exempt.
- Employees dismissed for serious misconduct don't require notice.
The amount of notice you need to give an employee when terminating their employment depends on their continuous service length with the company. Here's a breakdown of the minimum notice periods:
- Less than one year: One week
- One to three years: Two weeks
- Three to five years: Three weeks
- More than five years: Four weeks
Employees over 45 years of age who have at least two years of continuous service are entitled to an extra week of notice on top of the minimums listed above.
When terminating an employee, a written employment termination letter is mandatory. This letter should clearly state the reason for termination in a professional manner, while avoiding unnecessary details or negativity. Additionally, it must specify the employee's last day of work and detail the fixed amount of entitlements and unpaid wages they will receive, including accrued leave, bonuses, or severance pay. While offering a meeting to discuss the termination isn't legally required, it's considerate.
Final payslip for employees
When an employee's employment ends, you have a legal obligation to provide them with a final payment notice. This written document detailing the wages and entitlements they are owed at the end of their employment. Business owners are responsible for ensuring the final payslip is provided to the employee shortly after their departure, generally within seven days of their employment ending.
Determining an employee's final pay involves referencing their modern award, registered agreement, or employment contract. These documents outline the specific entitlements you owe them. Keep in mind that while each contract varies, the following entitlements are commonly included:
- Unpaid wages
- Expense claims
- Accrued annual leave
- Accrued long service leave
- Payments in lieu of notice
- Allowances
These documents often state the final pay due date, though if they don't, you have the flexibility to process the final payment on the employee's next scheduled payday within seven days of their employment ending.
Supporting departing employees
As a business owner, you understand the importance of a smooth and organised transition when an employee departs. Not only does it minimize disruption for your team, but it also helps maintain a positive relationship with the departing individual, potentially opening doors for future collaboration. Here's a guide your departing employees should do before they leave:
- Communicate the employee's last day well in advance and confirm any final responsibilities they need to fulfill.
- Collaborate with the employee to prioritise unfinished tasks and delegate necessary work to other employees.
- Provide guidance or resources to help the employee declutter their desk, files, and computer data.
- Conduct an exit interview (confidential if preferred) to gather valuable feedback on the employee's experience. This feedback can help you identify areas for improvement within your company culture and processes.
Your legal obligations extend beyond the employee's last day. As per legal requirements, ensure you securely store accurate records of their wages and hours worked for seven years. This includes payslips, time sheets, tax documents, and leave records. Maintaining easily accessible records ensures compliance and simplifies future reference if needed.
If you need further advice on managing employee exits, their notice periods and entitlements, Employment Compass can provide assistance. Call our 24/7 Employer Assist Line at 1300 144 002 for more information.
My employee has quit, but what happens if they don't work their full notice period?
If your employee gives notice but decides not to work the entire period, your options depend on the situation. You can:
- Accept their resignation and pay them for worked days and accrued leave, potentially deducting for missed notice if your contract or agreement allows.
- End their employment sooner, but you'll still owe them for worked days and leave, minus authorised deductions.
- Negotiate a payment in lieu of notice for the remaining period.
I dismissed an employee after they gave notice. Do I still owe them anything?
Yes, even if you terminate their employment after they resign, you're still legally obligated to pay them:
- All wages earned up to their last day of work.
- Accrued leave entitlements.
- Payment in lieu of notice for the remaining notice period.
However, ensure the termination wasn't based on discriminatory reasons or to avoid paying their entitlements.
An employee quit on the spot. Can I hold back their entire paycheck?
No, you cannot withhold their entire paycheck. While you can deduct a portion for the missed notice period under specific conditions, it must be:
- Permitted by their contract, award, or agreement.
- A reasonable amount based on their remaining notice period and earnings.
- Primarily benefiting them, not just you.
You cannot deduct other entitlements like accrued leave. Ensure you document the reasons and inform the employee in writing about the deduction.
What's the shortest notice period an employee has to give?
While the National Employment Standards (NES) don't mandate minimum notice periods, most contracts, awards, and agreements do. The specific timeframe depends on:
- Their award or agreement - check the relevant document for their specific requirements.
- Their length of service - generally, longer service warrants longer notice periods.
- Their employment type - casual employees typically don't have formal notice requirements.
My employee left, and I haven't paid them yet. What's the deadline?
You have a legal obligation to provide the employee with their final payslip and payment within seven days of their employment ending. This payment should include:
- Unpaid wages.
- Accrued leave entitlements.
- Other contractual entitlements like bonuses or severance pay.
Failing to do so can result in penalties and legal action.
Is it mandatory to write a letter when letting someone go?
Yes, when terminating an employee's employment, it's mandatory to provide a written termination letter. This letter should:
- Clearly state the reason for termination.
- Specify their last day of work.
- Detail their final pay entitlements.
While offering a meeting isn't legally required, it's considered good practice to discuss the termination in person.