Employee terminations are a fact of life when you’re in business. No employee will stay forever. Sometimes they’ll leave when you want them to stay and other times they’ll stay when you want them to leave. In most cases, the employee’s termination will need to be communicated to your payroll administrator before it occurs. In all cases, the payroll administrator will need to know the reasons for the termination and even the circumstances so that they can work out how to correctly calculate the termination pay. We’ll cover the most common types of terminations and their implications for payroll.
In all of the termination scenarios described below, it is recommended that you
- advise your employee that they can bring a support person to the termination meeting
- keep notes of any termination related meetings
- provide the employee with written advice of the termination, and
- read the Small Business Fair Dismissal Code to ensure that the proposed dismissal is fair.
In the less common termination scenarios, referring to an HR consultant is highly recommended.
Terminations by Employees
This is by far the single most common type of employee termination. This is when an employee specifically resigns or abandons their employment.
In the case of a resignation or abandonment, there are some crucial piece of information for payroll: the date that the employee ceases to show up for work; the date the employee gives notice; and the date that the employee ceases employment. Payroll will need to look at whether sufficient notice was provided by the employee and take into consideration the Fair Work entitlements of both employer and employee, as well as the employment agreement, which may vary the notice period. It will affect the number of ordinary hours due to be paid as well as the employee’s entitlement to their accrued annual leave balance.
Resignations should ideally be stated clearly in writing by the employee. It is also recommended that a letter accepting the employee’s resignation be issued. If the situation involves special circumstances or extreme pressure, then legally this may not constitute a termination by the employee.
In the case of abandonment, several factors are involved.
- Any explanation by the employee of their absence.
- Attempts made by the employer to establish contact.
- What the relevant industrial instrument says about circumstances that may deem an employee to have abandoned their employment. This could be a Modern Award, employment contract or company policy.
Terminations by the Employer within Minimum Employment Period
This type of termination refers to what is commonly known as the probationary period. The employment period varies, depending on the business size. Small businesses include a head count of less than 15 employees and have a 12-month minimum employment period. Large businesses include a head count of 15 or more employees have a 6-month minimum employment period. Employees terminated during the minimum employment period are excluded from making an unfair dismissal claim.
It’s considered best practice to provide such employees with feedback about their performance when conducting a termination meeting.
Your payroll department will need to know of the dismissal in advance, as they will need to prepare the termination pay before the termination meeting with the employee. They will need to know the last day of work and the date the termination became effective. They may also prepare a Centrelink Employment Separation Certificate.
Terminations of Casuals
As they are not guaranteed ongoing work, terminations of casuals are fairly straight-forward. It would be best to advise them that their employment is no longer required. A termination date can then be added to the employee’s record by your payroll administrator so that the employee is archived. It is best to ensure that your casual is a genuine casual, however. Just because you call them a casual and pay them a casual hourly rate does not mean that they are technically a casual. If they have worked on a regular and consistent basis for over 6 months (large employer) or 12 months (small employer), then other termination options may need to be considered.
Terminations by Employer for Genuine Redundancy
This type of termination is when employment ends because the operational requirements of the business mean that the job no longer needs to be performed. If you intend to terminate an employee and call it redundancy but then hire someone else for the position, this is not a genuine redundancy. You also need to consider whether the employee can be redeployed to an associated entity.
Payroll will need to be advised of the same information as per termination under a minimum employment period. They will calculate the number of hours to be paid for the notice period (pay in lieu of notice), redundancy pay, unused annual leave, plus any applicable unused long service leave, loadings, allowances and RDOs. This type of termination also involves an Eligible Termination Payment (ETP) and this are more complex and time consuming.
Summary Dismissal by Employer
Summary dismissal is immediate dismissal without notice. Examples where summary dismissal may be justified include:
- Refusing to follow lawful and reasonable instructions
- Conduct causing imminent and serious risk to a person’s health or safety or the employer’s reputation, viability or profitability
- Wilful or deliberate behaviour inconsistent with the employment contract
The incident or misconduct leading up to summary dismissal was covered in my previous article, which you can read here. Summary dismissal should be exercised only in exceptional circumstances.
Payroll will need to be advised of the summary dismissal as soon as practicable but certainly by the day of termination. Wages are only payable up to the time of dismissal.
Other Termination Scenarios
Invalidity, Fixed Term Contracts, Retirement, Early Retirement Scheme & Dismissal by Employer for Cause
These are also reasons for termination, but we won’t cover them in detail here. In brief:
- Invalidity – due to ill health. The employee must have two medical certificates to prove invalidity.
- Fixed Term Contracts – contract ends
- Retirement – the employee reaches a certain age, although under current law an employer cannot force retirement.
- Early Retirement Scheme – an offer by the employer incentivising an employee to retire early or resign due to a reorganisation of the business.
- Dismissal by Employer for Cause – an option where summary dismissal isn’t justified. It could be for unacceptable behaviour or when an employee can’t perform their job.
Disclaimer: Terminations can have serious legal consequences. We recommend that you seek competent human resources and/or industrial relations legal advice to ensure that you manage this appropriately, especially before terminating an employee. We are not qualified to provide this advice. The information in this article is only provided as an overview of the aspects that you should consider when dealing with these types of matters.