Avoid Costly Payroll Errors with Timely Termination Payments
Managing payroll accurately is a critical responsibility for employers, especially during the termination of employment. Many mistakenly believe that termination payments can be made within seven days or the next pay cycle. However, under the Fair Work Act, several key payments are legally required by the final day of employment. Failure to comply can result in penalties, damaged relationships, and reputational harm.
Key Termination Payment Rules
To ensure compliance and avoid costly errors, employers should be mindful of the following requirements:
- Payments in Lieu of Notice: These must be made before the employment ends, as highlighted in the Southern Migrant and Refugee Centre Inc v Shum case.
- Annual Leave: Any accrued leave must be paid out on the last day of employment. In Dorsch v HEAD Oceania, an employer faced penalties for non-compliance.
- Long Service Leave: Requirements vary by state, but immediate payment is mandated in jurisdictions like NSW and Victoria.
- Redundancy Payments: Some flexibility exists under awards, but payments are generally due within seven days.
Timely and accurate termination payments are vital for meeting legal obligations, protecting against penalties, and preserving trust with departing employees.
“Ensuring timely termination payments and accurate payroll management is essential to compliance, avoiding legal risks, and maintaining trust with employees.”
5 Common Payroll Errors and How to Prevent Them
Accidental underpayments are a widespread issue across industries, often exposing businesses to legal risks and financial penalties. With stricter wage theft laws coming into effect in 2025, ensuring compliance is more important than ever. The BelRose Group identifies five common causes of underpayments and practical solutions to prevent them.
1. Misapplication of Awards or Agreements
Failing to apply the correct award or agreement can lead to missed or incorrect entitlements. For instance, an airline that relied on individual contracts instead of an enterprise agreement incurred $7 million in underpayments.
Solution: Train payroll staff to correctly apply awards, and conduct independent sample audits regularly.
2. Classification Errors
Misclassifying employees often results in underpayments, particularly when roles evolve over time. Awards can be ambiguous, leading to errors.
Solution: Review employee classifications periodically, ensuring they align with the duties performed. Use checklists during onboarding for accurate classification.
3. Overtime Mismanagement
Some employers incorrectly assume salaried staff are exempt from overtime, but set-off clauses may not cover additional hours worked. Hybrid work environments can complicate tracking hours.
Solution: Monitor hours diligently and ensure set-off clauses comply with award requirements.
4. Overlooking Minimum Engagement Periods
Awards often mandate a minimum two- to three-hour shift for casual employees. Rostered shifts below these thresholds must still be paid accordingly.
Solution: Structure rosters to meet minimum engagement rules, and pay employees for the required period.
5. Long Service Leave Miscalculations
State-based variations in long service leave laws frequently lead to errors. In a recent case, businesses faced $1.67 million in underpayments due to oversight of entitlements.
Solution: Assess each leave claim individually, ensuring adherence to state regulations.
Ensuring Compliance and Building Trust
Effective payroll management hinges on regular training, thorough audits, and close collaboration between HR and payroll teams. Clear communication with employees and swift resolution of payroll issues not only mitigates risks but also fosters trust and engagement.
By addressing potential errors proactively, businesses can ensure compliance with evolving legislation, safeguard employee satisfaction, and maintain a strong reputation in the marketplace.