Are you employing someone who is under-performing? Do you have reasonable grounds to terminate their employment for not meeting their employment duties? Upon terminating an employee, you will typically be required to pay termination payment to the dismissed employee. There are a number of issues to consider before making a termination payment but first let us define what termination payment actually is.

What is Termination Payment?

Termination payment is what an employer owes an employee when they are terminated. These are legally due entitlements that need to be paid to compensate the terminated employee. A good example of a situation that might call for termination payment might be when employees receive pay entitlements instead of receiving proper notice or instead of severance pay. On top of this, the employee will usually be entitled to whatever annual leave they may have accrued during the course of their employment.

What should I consider when calculating Termination Payment?

Before you go ahead and pay an employee too much money in termination payment, you should be sure that you are paying the right amount. Before proceeding, ask yourself the following questions:

  • To what extent should the employee be paid termination payment?
  • Which category of termination payment do I owe the employee? E.g. notice pay or severance pay etc.;
  • Will the employee receive a payment instead of proper notice, or will they receive notice?
  • Does the employee have any severance pay entitlements?
  • Has the employee accrued any annual leave? What about long-service leave entitlements?
  • Have you had an employment lawyer look through the terms and conditions of the Employment Agreement?
  • Are any additional payments due and payable under any enterprise agreement or modern award?
  • Have you considered the taxation that may be owing to the employee?
  • Have you considered the taxation exemptions that might be applicable for severance pay?


Employment termination is probably not the most pleasant experience to go through, both as the employee being terminated and as the employer doing the terminating, but failing to pay the correct termination payment can land you in hot water and potentially expose you to additional liability. Along with termination payment, there are numerous other duties, such as notice (unless otherwise agreed) and a termination letter.

At LegalVision, we have extensive experience in all areas of employment law. If you need employment contracts drafted or reviewed, our team of employment lawyers are ready and willing to assist you. If you wish to terminate an employee and don’t know where to start, we can draft the termination letter on your behalf so that it addresses all the reasons for the termination and provides the employee with an opportunity to respond.

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