Need tips about termination payment? If so, this article will provide you with tips in dealing with termination payment issues. An employment termination payment (ETP) is a lump sum payment that a party receives following termination of their employment. An ETP can be classified as:
- Life benefit termination payments (life benefit ETPs); or
- Death benefit termination payments (death benefit ETPs). In the event of the death of an employee, employers also need to pay a death benefit termination payment to a beneficiary.
When calculating final pay, employers need to decide if any part of the payment is classified as an ETP (Employment Termination Payment). Only certain payments are eligible, and these are taxed at a lower rate than regular payments. Employment termination payments can include:
- Payment for any unused rostered days off
- Payment for unused sick leave
- Payment in lieu of notice compensation for loss of a job or wrongful dismissal, gratuity or severance package redundancy payments or early retirement scheme payments
The delicate balance between employer authority and employee rights forms the crux of termination procedures in NSW Australia. Navigating this legal landscape can be a daunting task for both parties, making it crucial to understand the intricacies of termination laws and the ethical considerations that accompany them.
Here are some tips for employers in relation to termination payment to their employees:
1. Know the Law
The Fair Work Act 2009 (FW Act) sets out the minimum entitlements for employees who face termination from their employment. Employers must be aware of these entitlements to ensure that they comply with the law.
Under the Act, when an employer terminates an employee’s employment, they must provide written notice of the termination or payment in lieu of notice. The employee’s length of service determines the minimum notice period. Furthermore, it can be increased by one week if the employee is over 45 years old and has completed at least two years of continuous service.
The Fair Work Ombudsman provides tools to calculate notice and redundancy entitlements, and employers are generally required to pay their employee’s final pay within 7 days of the employment ending, which may include payment in lieu of notice, outstanding wages, annual leave, and redundancy pay.
2. Have a Clear Termination Policy
A clear termination policy will help to ensure the fair and consistent handling of terminations. The policy should outline the employer’s termination procedures, including the notice periods that employees are entitled to, the amount of termination pay that they will be paid, and the process for appealing a termination decision.
To do so, you need to observe the following factors in making your employment contract:
- Clear Communication and Documentation. Clearly communicate the company’s expectations, rules, and consequences to employees.
- Transparency in Decision-making. Employees should be provided with clear reasons for their termination and be given an opportunity to understand the basis for the decision
- Legal Compliance. Ensure that the termination policy complies with all applicable employment laws and regulations to protect the company from potential legal issues and liabilities that could arise from wrongful termination claims.
- Review and Update. Regularly review and update the company’s policies and procedures to reflect any legal changes, ensuring that the organisation remains compliant with the law.
Note: Employees should check their award, any enterprise agreement, contract of employment or workplace policy to find out how much notice they need to give to resign from a job.

3. Train Managers on Termination Procedures.
Managers should be trained on how to handle terminations in a sensitive and professional manner. This training should cover the employer’s termination policy, the FW Act’s requirements, and how to communicate the termination decision to the employee.
Moreover, managers should ensure that the termination process is consistent across the organisation and that all employees are treated fairly and equitably. Most importantly, they should know how to handle the termination process smoothly with compassion and empathy, recognising that it can be a difficult time for the employee.
4. Document the Termination Process.
When it comes to official transactions, recording and documenting the process should be a standard operating procedure. It is important to document the termination process, including the reason for termination, the notice period given, and the amount of termination pay paid. This documentation will help to protect the employer in case of a dispute.
5. Be Prepared to Negotiate.
In some cases, employees may be entitled to more than the minimum entitlements under the FW Act. Employers should be prepared to negotiate eligible termination payments with employees, taking into account their individual circumstances and length of service.
6. Seek Legal Advice.
Finally, employers need to seek legal advice. If an employer is unsure about their obligations under the FW Act, they should seek legal advice. A lawyer can help the employer to develop a termination policy and train managers on termination procedures.
Here are some additional tips that employers may find helpful:
- Communicate the termination decision to the employee in a private and respectful manner.
- Explain the reason for termination clearly and concisely.
- Provide the employee with written confirmation of their termination, including the notice period and the amount of termination pay they will be paid.
- Offer the employee outplacement services to help them find a new job.
- Help employees if their employer pays out the notice period
By following these tips, employers can help to ensure that termination payments are handled fairly and legally.
Important Things That Employers Should Know
1. Timeframe for Payment. Employers should ensure that termination payments are made within seven days following the termination of the employee’s employment. Failure to adhere to this timeframe can place the business at risk of penalties.
2. Components of Termination Pay. An employee has the entitlement to the following in their final pay:
- Outstanding wages for hours worked
- Accumulated annual leave, including annual leave loading if it would have been paid during employment
- Accrued or pro rata long service leave
- Payment in lieu of notice
- Redundancy pay.
3. Valid Reason for Termination. Employers must have a valid reason to terminate an employee’s employment, based on either their capacity to work or conduct. They must communicate this to the employee in writing and verbally, allowing them to have a support person present at any meeting where they discuss the termination.
If you’re an employee and you want to know more about your termination payment, in case your employer terminates you from your job, these articles might be able to help you:
- Basic information about Employee Termination Payment (ETP)
- Process and Tax Treatment of the ETP
- Termination of Contracts
- Wrongful Termination of Employment
- When a Contract Can Be Terminated
- Effects of Termination of Contract

Seek Advice about Your Termination Pay
Are you an employer facing a termination payment case? Don’t go through it alone. Hire an employment lawyer who can help protect your rights and interests. Lawyers of JB Solicitors have the experience and expertise to handle complex termination payment cases. They are expert negotiators who can get you the best possible outcome.
If you do not hire a lawyer, you may be at risk of:
- Paying out more money than you owe
- Having to defend yourself in court
- Damaging your business’s reputation
Don’t let a termination payment case damage your business. Contact a lawyer today and get the legal help you need.