Summary
When employment ends you must pay out everything owed — outstanding wages, accrued annual leave, any payment in lieu of notice, any redundancy pay, and long service leave where the entitlement has crystallised. The deadline is set by the award, enterprise agreement or contract, and many awards require it within seven days of termination. Where nothing specifies a time, the Fair Work Ombudsman's position is that it should be paid promptly, and in any case by the next scheduled pay day.
Final pay goes wrong more often than ordinary pay, for a structural reason: it is the one calculation with no next pay run to correct it in. Everything that is usually smoothed out over time — an unapproved shift, a leave balance nobody reconciled, a rounding rule — lands in a single figure paid to someone who is on their way out and has every reason to check it.
What has to be in the payment
Outstanding wages
All hours worked up to and including the last day, at the correct rates including penalties, overtime and allowances. This is the most commonly wrong component and the reason is mundane: the final period is a part pay period, so it falls outside the normal cycle and often gets estimated from the roster rather than taken from what was actually worked.
Accrued but untaken annual leave
Paid out in full. Under the Fair Work Act this is at the employee's base rate for the ordinary hours the leave represents — but if the award, agreement or contract says leave loading is payable on termination, then it is, and many awards say exactly that. Read the clause rather than assuming. We covered this in detail in annual leave loading explained.
Payment in lieu of notice, where applicable
The NES sets minimum notice periods based on continuous service, with an additional week for employees over 45 with at least two years' service. You either let the employee work the notice or pay it out at the full rate they would have received for the hours they would have worked — which includes allowances, loadings, penalties and overtime they would ordinarily have earned, not just base pay. That distinction is a frequent shortfall.
Notice is not required for casuals, for employees dismissed for serious misconduct, or for certain fixed-term and seasonal arrangements.
Redundancy pay, where applicable
The NES scale runs by years of continuous service. Two exclusions matter in practice: small business employers — fewer than 15 employees, counted including casuals employed on a regular and systematic basis — are generally not required to pay NES redundancy, and an award or agreement may set a different entitlement. It must also be a genuine redundancy: the job is no longer required, consultation obligations in the award or agreement have been met, and redeployment has been considered.
Long service leave
Governed by state and territory legislation, not the Fair Work Act. Most jurisdictions provide a pro-rata entitlement on termination after a qualifying period shorter than the full entitlement — and the rules on which terminations qualify differ by state. This is dealt with separately in our long service leave guide.
What is not paid out
Accrued personal or carer's leave is not paid out on termination unless an award, agreement or contract requires it — and almost none do. Accrued RDOs generally are payable. Time off in lieu that has not been taken must usually be paid at the overtime rate it was accrued at, not at ordinary time — see overtime vs TOIL.
Deductions: the rule that surprises employers
You generally cannot deduct from final pay for unreturned property, till shortfalls, damage, training costs or notice the employee failed to give — unless the deduction is authorised in writing by the employee and is principally for their benefit, or is authorised by a law, court order or the award.
An authorisation signed at the start of employment covering "any amounts owing" is unlikely to satisfy that test, because a deduction to recover the employer's loss is not principally for the employee's benefit. Unlawful deductions are a contravention in their own right, separate from the underpayment they create — and withholding a final payment as leverage to get a uniform back is exactly the fact pattern regulators act on.
Superannuation on final pay
Super is payable on the ordinary time earnings components of final pay. Payment in lieu of notice is generally OTE; genuine redundancy payments and payouts of unused annual leave and long service leave on termination generally are not.
The timing changed materially under Payday Super. A final payment is a payment of qualifying earnings, so it starts its own seven-business-day clock — independent of your normal cycle. A termination processed off-cycle on a Wednesday has a super deadline nobody has diarised, and that is now one of the most common ways to miss one.
Tax, briefly
Final pay components are withheld differently: unused annual leave and long service leave have their own withholding treatment which depends on when the leave accrued and why employment ended; a genuine redundancy has a tax-free component based on years of service; and employment termination payments have their own caps and rates. Use the current ATO schedules for the year of payment rather than reusing a previous calculation, and issue the employee an income statement covering the payment.
Cessation reason codes
Since STP Phase 2 you must report why employment ended — voluntary cessation, redundancy, dismissal, ill health, contract cessation, or transfer. This is not a formality: the code flows to the ATO and Services Australia and affects the employee's treatment. Choosing "voluntary" for what was in substance a redundancy misstates their tax position and their entitlements. See STP Phase 2 reporting.
The five-step final pay process
- Close the timesheet first. Before calculating anything, resolve every open shift for the final period — missed clock-outs, unapproved shifts, breaks that were not recorded. This is where the errors are.
- Reconcile leave balances against approved leave actually taken, not against the running figure nobody has audited.
- Read the instrument for the payment deadline, leave loading on termination, notice, and redundancy.
- Check the deduction rules before withholding anything at all.
- Diarise the super deadline from the date of payment, and give the employee a written breakdown of what each component is.
That last item costs nothing and prevents most disputes. Most final pay complaints are not really about the amount — they are about a lump sum arriving with no explanation of how it was arrived at.
Keep the records
Termination records must be kept for seven years, including how employment ended, who terminated it, and the notice given. And the wider rule still applies: if a former employee alleges an underpayment and you cannot produce records, the burden shifts to you to disprove it. That is the single worst position to be in with someone who no longer works for you. See employee record-keeping.
Where the system helps
Step one is the whole game. NestedClock's pre-payroll check surfaces anyone with a missed clock-out, an unapproved shift or no pay rate before you finalise, which is what stops a final period being estimated. Because time entries, approved leave and adjustments are all retained with an audit trail rather than overwritten, the leave balance and the hours figure both have a history behind them — so a departing employee's query has an answer, and so does a Fair Work inspector's.
Where to check the detail
Notice and redundancy are in the National Employment Standards in the Fair Work Act 2009; payment timing, leave loading on termination and TOIL payout are in your award or agreement; long service leave is state and territory law; and the tax treatment is in the ATO's current withholding schedules.
This article is general information, not legal or tax advice.