Paying employee entitlements when staff leave

When must you pay employee entitlements after they resign? This is a question I’ve been asked many times in my career. On the surface, final payment of employee entitlements seems like a simple administrative matter. Yet in practice, it sits at the intersection of the Fair Work Act, modern awards and recent case law, and the combination has left many businesses genuinely confused about their obligations.

It’s common for employers to simply process final entitlements through the next scheduled pay run, treating it the same as any other pay cycle. Unfortunately, this approach is not as safe as it may seem and getting it wrong can expose a business to penalties.

Payment in lieu of notice obligations are clear

If an employee receives payment in lieu of notice instead of working their notice period, section 117(2)(b) of the Fair Work Act 2009 (Cth) is clear: the payment must be made on or before the day their employment ends, i.e. their last day of work.

There is no flexibility in this requirement, so delaying payment until the next regular pay run will not comply.

Other entitlements can create a compliance trap

When it comes to other amounts owed on termination, such as accrued and unused annual leave, outstanding wages and other accrued entitlements, the Fair Work Act does not set out a specific statutory timeframe for payment.

Most modern awards fill this gap by requiring these amounts to be paid within seven days of employment ending. Many employers have come to rely on this seven-day window as a general rule of thumb for all termination payments. However, this creates a compliance trap.

While the seven day period was permissible for entitlements covered by an award, it never extended to payment in lieu of notice, which remained governed by the stricter Fair Work Act timeframe. It is also essential to note that long service leave is treated differently too.

The Jewell decision changed the rules

Recent case law has added another layer to this issue. In Jewell v Magnium Australia Pty Ltd (No.2) [2025], the Federal Circuit and Family Court of Australia imposed penalties on an employer for failing to pay all of an employee's entitlements on or before their final day of work.  

This decision suggests the courts are prepared to treat the last day of work as the effective deadline for final payments generally, not just for payment in lieu of notice. This arguably makes the seven-day allowance in modern awards largely academic in practice.

What does this mean in terms of future compliance?

Given the overlapping and, at times, conflicting requirements across the Fair Work Act, modern awards and emerging case law, the safest and most defensible approach is straightforward.

Pay all amounts owed to a departing employee, including notice pay, outstanding wages and accrued leave, on their final day of employment. This removes any ambiguity and protects your business from the risk of underpayment claims or penalties.

This can be restrictive, particularly for organisations who may have one payroll officer or a part-timer. You may need to take this into consideration when planning show cause or disciplinary meetings, keeping in mind that you can’t pre-empt the outcome.

For advice or assistance with other industrial relations matters, please contact Dean Sherriff at the Bayside Group on 0458 026 609 or email dsherriff@baysidegroup.com.au.