How notice period pay works when employment ends in Australia

When an employee's job ends, notice period pay is rarely the first thing on a business owner's mind. It should be. Get the notice period, or the payment that stands in for it, wrong, and a straightforward exit can turn into an underpayment demand, a Fair Work investigation, or a claim.

Notice period pay is the money an employee receives for the period of notice that applies when employment ends. It exists because the law recognises that neither side should be cut loose without warning: the employee is paid for the transition period, and the employer gets an orderly handover. This article walks through how the scheme actually operates under the National Employment Standards (NES): what triggers it, how much notice is required, how payment in lieu of notice works, who sits outside the scheme, and what belongs in the final pay.

What notice period pay is for

Notice period pay is delivered in one of two ways, and the distinction matters:

• Worked notice: Employment continues to the end of the notice period, and the employee is paid their normal wages for that time. The handover happens in real time.
• Payment in lieu of notice: Employment ends immediately, and the employer pays a lump sum equal to what the employee would have earned over the notice period.

For employer-initiated terminations, the minimum standards come from Division 11 of Part 2-2 of the Fair Work Act 2009 (Cth), which sits inside the NES. An applicable award, enterprise agreement or contract can increase those minimums, but none of them can reduce them.

When the notice obligation is triggered

The obligation to give notice, or pay in lieu, is triggered when the employer ends the employment. Section 117 of the Fair Work Act 2009 (Cth) is the operative rule: an employer must not terminate an employee unless it has given written notice of the day of termination, and that day cannot be before the notice is given.

The same section sets out the two ways to comply. The employer either:

• gives notice at least as long as the minimum period set out in the section, so the time between the notice and the termination day is long enough; or
• pays in lieu of notice, in an amount at least equal to what the employer would have had to pay, at the full rate of pay, for the hours the employee would have worked to the end of the minimum period.

Notice of the termination day must be in writing. A conversation, a phone call or a text message that leaves no record is a compliance risk from the moment it happens.

The NES notice rules are aimed at employer-initiated terminations. Where an employee resigns, the notice they must give comes from their award, enterprise agreement or contract, not from the NES. If they work out their notice, you simply pay normal wages for the period; if both sides prefer an earlier end date, a documented payment in lieu arrangement can be agreed.

How much notice the NES requires

For employer-initiated terminations, section 117 sets the minimum notice period by the employee's period of continuous service with the employer:

Two adjustments matter. First, an employee who is over 45 and has completed at least two years of continuous service gets an extra week on top of the table. Second, periods of casual employment do not count toward continuous service for this purpose, so a casual period that later converts to permanent employment does not automatically build service for notice.

The minimums are exactly that: minimums. Modern awards commonly require longer notice, enterprise agreements may too, and a well-drafted contract can set its own periods. Anything that tries to go below the NES table is ineffective to that extent. When in doubt, work from the instrument that gives the employee the most, then check it against the NES floor.

Working out the notice, or paying it out

Once the period is known, the employer chooses between the two paths in section 117.

Worked notice is the simpler path. Employment continues, wages are paid as normal, and the only obligation is to make sure the notice period actually runs for the full minimum before the termination day.

Payment in lieu is where most of the errors happen. The lump sum is not "a month of base salary". Section 117(2)(b) requires payment at the full rate of pay for the hours the employee would have worked to the end of the minimum notice period, and the Fair Work Act defines the full rate of pay in section 18 to include:

• incentive-based payments and bonuses;
• loadings;
• monetary allowances;
• overtime or penalty rates; and
• any other separately identifiable amounts.

In practical terms, the payment-in-lieu calculation should pick up the regular allowances and loadings that would have applied during the notice period and any penalty rates that would have arisen under the roster. Overtime that would not actually have been worked, and discretionary bonuses that were not contractually due in the period, generally fall outside it. The applicable award, agreement and contract are the first place to check for inclusions and exclusions.

A worked example: an employee on a 38-hour week at $30 per hour with three and a half years of service, under 45, is entitled to three weeks' notice. If the employer ends employment immediately, the payment-in-lieu floor is 114 hours at the full rate, or $3,420, plus any regular allowance that would have applied, plus superannuation on top.

Superannuation on payment in lieu

Payment in lieu of notice is treated as ordinary time earnings for superannuation guarantee purposes. The ATO's list of payments that are ordinary time earnings confirms that payment in lieu of notice is both salary and wages and ordinary time earnings for all termination reasons, which means superannuation is payable on the notice component.

The contrast matters at the other end of the final pay. The same ATO guidance treats unused annual leave paid out on termination as not being ordinary time earnings, and treats most other payments made in consequence of termination, such as genuine redundancy severance, the same way. So the notice component attracts super, while the leave payout and the redundancy component generally do not, though an award or agreement can require super on more. It is worth a payroll or tax check on the specific figures before processing.

Who sits outside the NES notice scheme

Section 123 of the Fair Work Act carves out a defined group of employees who do not get NES notice or redundancy entitlements. The Fair Work Ombudsman's guidance on who does not get notice covers the same ground. The main exclusions are:

• Casual employees: NES notice does not apply to casuals, so ending a casual engagement does not trigger the section 117 minimums (an award or agreement might say otherwise, so check the instrument).
• Employees employed for a specified period, task or season: a fixed-term or fixed-task arrangement that ends on its stated end date needs no notice. If the employer ends it early, notice or payment in lieu can still apply depending on the contract and the reason.
• Employees dismissed for serious misconduct: no notice is required, but all other accrued entitlements still are.

The serious misconduct exclusion is the one businesses most often overreach on. Regulation 1.07 of the Fair Work Regulations 2009 (Cth) defines serious misconduct as wilful or deliberate behaviour inconsistent with the continuation of the employment contract, conduct causing serious and imminent risk to health or safety or to the reputation, viability or profitability of the business, theft, fraud, assault or sexual harassment in the course of employment, intoxication at work, or refusing a lawful and reasonable instruction. If the conduct does not actually meet that bar, terminating without notice is itself a breach, and the exclusion becomes an unfair dismissal risk rather than a protection.

Note the anti-avoidance rule in section 123(2): the specified-period exclusion does not apply if a substantial reason for structuring the employment that way was to dodge the notice and redundancy obligations.

What else lands in the final pay

Notice, worked or paid in lieu, is only one component of the final pay. A complete termination payment usually includes several others, each with its own rules:

• Accrued annual leave: paid out at termination, plus any leave loading the award requires on the payout. This is separate from notice and cannot be used to satisfy it.
• Long service leave: governed by state and territory legislation, with different thresholds and rates in each jurisdiction.
• Redundancy pay: a separate entitlement to notice. Under section 119 of the Fair Work Act, a genuine redundancy triggers redundancy pay calculated from a service-based table, at the employee's base rate of pay for ordinary hours, and sections 121 to 123 set out the situations where it does not apply, including small business and short-service cases. Notice is still owed on top of redundancy pay, so both can appear in the same final pay.
• Other contractual amounts: commissions already earned and payable, and any other amounts the contract says are due on exit.

Deductions from the final pay are tightly controlled. Section 324 of the Fair Work Act allows a deduction only where it is authorised in writing by the employee and is principally for their benefit, authorised by an enterprise agreement, authorised by a modern award or Fair Work Commission order, or required by law. There is no general right to withhold, and accrued annual leave cannot be raided to cover an unworked notice period.

Employee records come with their own obligation: section 535 requires employers to make and keep employee records, including termination details, for seven years. If a dispute later arises, the records are the evidence.

Where the scheme typically trips employers up

The common failure points are worth naming, because each one is preventable:

• Withholding pay for short notice on resignation: Some awards, agreements and contracts let an employer deduct the value of notice an employee failed to give. The power must be express in the instrument, and any deduction still has to satisfy section 324. Without that foundation, withholding is unlawful, and deducting from accrued leave to cover a shortfall is not available.
• Using payment in lieu of notice without checking the contract: The NES permits the payment-in-lieu route, but whether the employer can require an immediate exit rather than worked notice can depend on the contract and any award or agreement rules. If the instrument is silent, an immediate-exit demand followed by a dispute can cost more than the notice period was worth.
• Forgetting super on the notice component, or paying it on the wrong components: Payment in lieu attracts super; the annual leave payout and redundancy severance generally do not. Processing them through the wrong payroll codes is a common and easily avoided error.
• Assuming probation removes the obligation: The NES contains no probation exception to the notice requirement in section 117. Some awards and contracts set out shorter notice arrangements during probation, but an instrument cannot cut below the NES minimum for an employer-initiated termination, so the interaction needs to be checked rather than assumed.
• Conflating redundancy pay with notice: Both are owed in a genuine redundancy, calculated differently: notice at the full rate of pay, redundancy pay at the base rate for ordinary hours, with its own exclusions.

Where a lawyer earns their keep

The NES sets the floor, but the instruments you control do the heavy lifting, and that is where legal input pays for itself:

• Contract drafting: a well-drafted employment contract sets out the notice period, whether payment in lieu of notice is available and on what terms, how commissions and bonuses are treated on exit, and any deduction or set-off clause that complies with section 324. Most payment-in-lieu disputes trace back to a contract that never said the option was available.
• Serious misconduct processes: terminating without notice is lawful only if the conduct genuinely meets the regulation 1.07 standard, and the process still has to be fair. A lawyer can help with the evidence, the show-cause step and the termination letter so the exclusion is not turned into a liability.
• Redundancy processes: genuine redundancy requires the job itself to be gone, not just the person, and the consultation and selection steps have to hold up. Notice and redundancy pay then need to be calculated side by side.
• Pre-exit review: having a lawyer check a template contract and a termination process before they are needed is a fraction of the cost of defending one exit done badly.

The decision that carries the risk

Across all of this, the decision that carries the most risk is not the number of weeks in the notice table. It is the choice made on the day to pay the employee out rather than have them work the notice, and the calculation behind that payment. The NES states the minimum period, but the law is unforgiving about the rate: pay in lieu at base rate when penalty rates and allowances would have applied, skip the super, or let the final pay drift past the payroll cycle, and the apparent saving evaporates in interest, penalties and a Fair Work investigation. The employee records kept for seven years under section 535 are the paper trail that will show exactly what was paid and why. Get the contract right in advance, calculate the payment in lieu at the full rate, and document the decision, and notice period pay becomes the routine part of an exit it is supposed to be.