Termination Pay: What Employers Need to Know

When an employee leaves your business—whether they resign, retire, are dismissed, or made redundant, it’s more than just saying goodbye. There are important legal, payroll, and tax obligations to manage, and these differ depending on the type of termination.

Handled well, you protect your business from disputes, avoid costly mistakes, and ensure you meet Fair Work and ATO requirements. This guide outlines what employers need to consider.

Why Getting Termination Pay Right Matters

Final pay is rarely a one-size-fits-all calculation. Some terminations involve simple payouts for unused leave. Others require complex calculations for redundancy or ETPs with different tax treatments.

If you miss an entitlement, miscalculate tax, or overlook an award provision, you risk:

Breaching the National Employment Standards (NES)
Underpaying an employee and possible penalties for wage theft
Incorrect Single Touch Payroll (STP) reporting
Compliance issues with Payroll Tax and Workers Compensation declarations

A clear process ensures accuracy, compliance, and fairness every time.

Key Types of Terminations

Resignation

Voluntary resignation
Retirement
Invalidity, medical certification from two (2) medical partitioners required
Abandonment of employment – employee doesn’t return to work with no explanation as to why

Dismissal

With notice – employers must give the minimum period of notice
Summary dismissal – instant due to serious misconduct of employee
Constructive dismissal – deemed to be at the initiative of the employer for eg after threat of dismissal
End of fixed-term contract

Redundancy

Genuine redundancy – role no longer required
Early retirement schemes

Notice Periods

The notice required depends on the employee’s continuous service and award or contract terms. Employers must provide written notice. Public holidays do not extend notice periods. Leave can be taken during the notice period with agreement but cannot be forced.

What’s Included in Termination Pay?

Depending on the circumstances, termination pay may include:

Unused annual leave plus leave loading
Long service leave – check state rules
Redundancy or severance pay
Rostered Days Off – RDO’s
Payment in lieu of notice – ILON
Gratuity or golden handshake
Other entitlements as per contract or award

Redundancy Pay

Can occur when an employee’s job is made redundant and is based on their continuous period of service.

Not payable if:

Employer has fewer than 15 employees (small business)
Employee is casual or has less than 12 months’ service
Termination is due to misconduct
Worker is on a fixed-term, seasonal contract, or is an apprentice or trainee

Employment Termination Payments (ETPs)

An ETP is a lump sum paid in certain termination situations, including:

Payments ILON
Gratuity or golden handshake
Compensation for loss of job or wrongful dismissal
Unused personal leave or RDOs
Redundancy payments above the tax-free limit
Payments after death of an employee

To qualify for concessional tax treatment, ETPs must be paid within 12 months of termination.

How Beam Bookkeeping Can Help

We work with you to ensure your termination payments are correct, compliant, and processed on time.

We work with Payroll & HR Specialists & your accountant where necessary to:

Calculate redundancy and ETP payments
Accurately process in your Payroll Software with correct PAYG Withholding and STP reporting
Consider the impact of such payments on your Payroll Tax and Workers Compensation declarations

Final Word

Every termination is unique.

The right approach protects your business and ensures a smooth transition for both you and the employee.

With Beam Bookkeeping in your corner, you can be confident your termination payments meet all legal, tax, and reporting obligations.

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🌐 www.beambk.com.au
📞 (02) 4957 3174