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It is not uncommon for employers to have a practice of making termination payments in the next pay cycle following termination of employment. This practice reflects the standard termination provisions in many modern awards (including the Clerks – Private Sector Award 2020;1 the Banking, Finance and Insurance Award 2020;2and the Mining Industry Award 2020,3 among others) which express that termination payments must be paid no later than 7 days after the day on which the employee's employment terminates (Model Payment of Wages Clause).
However, a growing line of Court authorities demonstrates that even short delays in making termination payments after the final day of employment (even where that delay is only a few days) can expose employers to civil penalties under the Fair Work Act 2009 (FW Act) with respect to the following provisions:
- Section 117(1):
An employer must not terminate an employee's employment unless the employer has given the employee written notice of the day of the termination (which cannot be before the day the notice is given. Relevantly, subsection (2)(b) then prescribes that the employer must not terminate the employee's employment unless:
... the employer has paid to the employee (or to another person on the employee's behalf) payment in lieu of notice of at least the amount the employer would have been liable to pay to the employee (or to another person on the employee's behalf) 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.4 - Section 119: An employee is
entitled to be paid redundancy pay by the employer if the
employee's employment is terminated:
- at the employer's initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or
- because of the insolvency or bankruptcy of the
employer.
- Section 90(2): If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken the period of leave.
Case law guidance regarding timing of employee termination payments
In Jewell v Magnium Australia Pty Ltd (No 2) [2025] FedCFamC2G 201, the applicant brought proceedings against his former employer, Magnium, alleging a breach of the FW Act general protections provisions. While the Court found in favour of the employer in respect of the general protections claim, Judge Champion opined that "Magnium had to make payments as to notice, redundancy pay and accrued and unused leave as at the date of the dismissal of Dr Jewell. It did not do so. It late paid these entitlements."5
Notwithstanding that Magnium admitted these contraventions, ultimately Magnium was ordered to pay $18,600 in penalties, comprising of $6,200 for each failure to pay Dr Jewell; (1) notice; (2) redundancy pay; and (3) unused leave, on the date of his termination.6
Similarly, in Dorsch v HEAD Oceania Pty Ltd (Penalty) [2024] FCA 484, Justice Raper imposed a penalty of $17,000 on the employer after stating in the liability judgment that the "obligation to pay accrued annual leave crystalised on the termination of the employment relationship."7 There, the employer admitted to contravening section 90(2) of FW Act by failing to pay Mr Dorsch his accrued but untaken annual leave until three months after his employment was terminated.
A further matter considering these issues which is presently before the Court, is Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022] FCA 481. Here, the employee was terminated by written notice on 19 June 2017 and paid payment in lieu of notice (PILON) on 23 June 2017, a mere four days later. On appeal, the Federal Court found that the termination on 19 June 2017 was not void or otherwise of no effect because of the late payment of PILON, however specifically noted that the employer had not complied with the requirements of section 117(2)(b) of the FW Act. In remitting the issue of remedy back to the Federal Circuit Court of Australia, Justice Snaden stated that given the employee was paid a short time after the dismissal took effect, it may be that the employee's loss was minimal (if at all) and potentially no pecuniary penalty will be imposed.8. The issue of relief relating to section 117 of the FW Act was bifurcated during the rehearing9 and submissions were filed by the employer on 8 September 2025. As at the date of this article, a hearing date has not been set, so this is "one to watch" in the upcoming months.
What amounts form part of an employee's final pay?
An employee's final pay usually comprises:
- wages owing for the hours the employee has worked, including penalty rates and allowances;10
- any accrued but untaken annual leave, including annual leave loading if it would have been due to the employee during employment,11
and, depending on the circumstances, might also include:
- payment in lieu of notice;12
- redundancy pay;13 and/ or
- accrued or pro-rata amounts owing in respect of long service leave.14
The complexity with the recent decisions (discussed above) is that they require employers to at least pay items 2, 3 and 4 on the date of termination, while items 1 and 5 may or may not be payable on a later date (including, for example, in the next pay cycle) depending on the relevant source of the entitlement.
How should employers reconcile this case law with relevant modern awards and processes in practice?
The cases above indicate a developing position from the Courts that what has often been referred to as a "technical breach" of the FW Act can now result in significant penalties in each individual instance.
While it is arguable that this creates an apparent inconsistency with the Model Payment of Wages Clause, the Full Bench of the Fair Work Commission in Re 4 yearly review of modern awards – Payment of wages [2018] FWCFB 3566 has previously disagreed that this creates any tension between the provisions of the FW Act and the modern award terms in the context of payment in lieu of notice, stating that "the requirement under (a) of the model term to pay "no later than 7 days after" termination does not conflict with any requirement under section 117(2) to make payment in lieu of notice before or at the time of termination."15
Noting the developing case law, employers should:
- check their payroll systems and identify whether they can accommodate "out of cycle" pay runs;
- ensure communication within the business and payroll so that relevant departments are updated on timing to avoid inadvertent contraventions or administrative oversights; and
- where difficulties are anticipated in running an "out of cycle" pay cycle, consider scheduling termination dates to align with payroll cycles including by utilising options, such as brief gardening leave, to align with the completion of employment duties and the termination date.
Footnotes
1. Clerks – Private Sector Award 2020 cl 17.5(a).
2. Banking, Finance and Insurance Award 2020 cl 16.3(a).
3. Mining Industry Award 2020 cl 16.4(a).
4. Note: s 117(2)(a) specifies that the time between giving the notice and the day of the termination is at least the period (the minimum period of notice) worked out under subsection (3).
5. Jewell v Magnium Australia Pty Ltd (No 2) [2025] FedCFamC2G 201 [205].
6. Jewell v Magnium Australia Pty Ltd (No 2) [2025] FedCFamC2G 676 [53]. Note: As part of the penalty decision, Judge Champion found each failure was a distinct contravention of the National Employment Standards and as such s 577 could not be enlivened.
7. Dorsch v HEAD Oceania Pty Ltd [2024] FCA 162 [292].
8. Southern Migrant and Refugee Centre Inc v Shum (No 3) [2022] FCA 481 [207].
9. Southern Migrant and Refugee Centre Inc v Shum (No 3) [2025] FedCFamC2G 393.
10. Note that wages owing are not traditionally payable on the date of termination, but rather in accordance with any applicable industrial instrument, contractual obligation or pursuant to the obligation under FW Act s 323 which creates an obligation to pay "in full" and "at least monthly".
11. FW Act s 90(2).
12. FW Act s 117(2)(b).
13. FW Act s 119(1).
14. See for example, Long Service Leave Act 2018 (VIC) s 9(1)(b) which requires payment on the day on which the employment ends.
15. Re 4 yearly review of modern awards – Payment of wages [2018] FWCFB 3566 [84]. Note, the Full Bench also confirmed that the proper construction of section 117(2)(b) was "yet to be conclusively determined by a court and accordingly in the December 2016 decision we indicated that the note would be phrased so as to avoid the need to express a concluded view about this issue" at [83].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
