Notice Period Pay: Australian Employer’s Essential Guide

If you’re running a team in Australia, staff changes are part of the journey. Whether someone resigns or you need to end employment, getting notice period pay right isn’t just a formality - it’s essential to fair, compliant and low‑risk HR practices.

This guide breaks down what notice period pay is, when it applies, and how to calculate and process it confidently. We’ll also cover the key exception for serious misconduct, common edge cases (like casuals and fixed‑term contracts), and practical tips to keep your processes clean and defensible. If you’re short on time, skip to the key takeaways at the end - and remember, we’re here to help you apply this to your situation.

What Is Notice Period Pay?

Notice period pay is the amount an employee is paid for the period of notice when their employment is ending. That can happen in two ways:

• The employee works out their notice: Employment continues to the end of the notice period, and you pay wages as normal.
• Payment in lieu of notice (PILON): You end employment immediately and pay an amount equal to what the employee would have earned during the notice period. For a deeper dive on when and how to use PILON, see payment in lieu of notice.

For employer‑initiated terminations, minimum notice obligations come from the National Employment Standards (NES). An applicable award, enterprise agreement or contract can increase those minimums (but not reduce them).

When Do You Need To Provide Notice?

Most employer‑initiated terminations require notice (or payment in lieu). There are a few important nuances to be aware of.

The Serious Misconduct Exception

No notice is required if you terminate because of serious misconduct (for example, theft, fraud, violence, or serious breaches that make continued employment untenable). You should still pay any other final entitlements owed (such as accrued annual leave), but not notice. This is a key NES exception many businesses overlook.

Redundancy, Performance or Other Terminations

Where you end employment for redundancy, performance or other reasons (that aren’t serious misconduct), you must provide the relevant notice or pay it out. Redundancy pay (if applicable) is a separate entitlement to notice - both may be owed for a genuine redundancy.

Employee Resignations

If an employee resigns, the notice they must give usually comes from their award, enterprise agreement or contract. If they work the notice period, you simply pay normal wages for that time. If both parties prefer an earlier end date, you can agree to a payment in lieu arrangement and document it.

Casual Employees

Under the NES, casuals generally aren’t entitled to notice of termination. An award, agreement or contract could say otherwise, so always check the instrument.

How Much Notice Is Required Under the NES?

For employer‑initiated terminations (other than serious misconduct), the NES sets the following minimum notice periods based on the employee’s continuous service:

• 1 week - less than 1 year
• 2 weeks - 1 to 3 years
• 3 weeks - 3 to 5 years
• 4 weeks - more than 5 years

Employees aged 45 or over with at least 2 years of service are entitled to an additional week of notice.

Awards and enterprise agreements can require longer notice, and contracts often include their own provisions. You can provide more notice than the minimums, but never less. If you’re unsure which period applies in your scenario, see this overview on calculating employee notice periods.

How Does Payment In Lieu of Notice (PILON) Work?

Sometimes it’s not practical or desirable for an employee to remain at work during the notice period - for example, where you have confidentiality concerns, you’re managing risk around clients or systems access, or the relationship has clearly broken down.

PILON allows you to end employment immediately and pay the amount the employee would have earned if they had worked the notice. Whether you can choose PILON will depend on the wording of the contract and any applicable award or agreement. If permitted, PILON is often the simplest way to transition quickly while remaining compliant.

What Should Notice Pay Include?

When you pay notice (either as wages while the employee works, or as a lump sum in lieu), include what the employee would have received for ordinary hours during that period, typically:

• Base pay for ordinary hours
• Regular allowances or loadings that would have applied
• Penalty rates or shift allowances if they would have arisen based on the roster

Generally excluded: overtime that wouldn’t have been worked, discretionary bonuses that aren’t contractually due in that period, or commissions that don’t fall payable during the notice period. Always cross‑check the award/EA/contract for inclusions and exclusions.

Is Superannuation Payable On PILON?

In many cases, payment in lieu of notice is treated as ordinary time earnings for Superannuation Guarantee purposes. That means super is often payable on the PILON component, while separate redundancy severance amounts are typically not ordinary time earnings. The exact treatment can be nuanced, so it’s a good idea to review this PILON and superannuation guidance and seek payroll or tax advice for your circumstances.

Important: Super and tax outcomes depend on your facts and current ATO guidance. Treat the above as general information, not financial advice.

Common Scenarios and Edge Cases

Employee Doesn’t Work Required Notice on Resignation

Some awards, agreements or contracts allow you to withhold an amount from final wages up to the value of the notice the employee failed to provide. This must be expressly permitted by the applicable instrument and applied lawfully. You must not deduct from protected entitlements like accrued annual leave to cover a shortfall in notice. If you’re considering a deduction, read up on withholding pay from employees before proceeding.

Fixed‑Term Contracts

If a fixed‑term contract expires on its stated end date, notice is usually not required. If you end it early, notice or a payment in lieu may apply depending on the contract terms and the reason for ending employment.

Probation Periods

Probation doesn’t remove NES notice obligations if you’re the one ending employment (other than for serious misconduct). However, awards or contracts often provide for shorter notice during probation.

Redundancy vs Notice

Redundancy pay and notice are separate entitlements. For a genuine redundancy, you’ll typically provide both (subject to small business and other exclusions). If you need a sense check on entitlements in a restructure, this redundancy calculator is a helpful starting point, and you should ensure your process remains fair and consistent.

Calculating and Processing Final Pay

When employment ends, you’ll usually process notice (worked or paid in lieu) alongside other termination amounts in the final pay. A simple, documented process reduces errors and disputes.

What Goes Into Final Pay?

• Notice: Worked or paid in lieu, calculated under the applicable instrument.
• Accrued annual leave: Paid out at termination in most cases. See any award rules about leave loading on payout.
• Long service leave: State or territory rules apply - check thresholds and rates for your jurisdiction.
• Redundancy pay: If applicable, calculated separately to notice.
• Other contractual amounts: e.g. commissions already earned and payable under the contract’s rules.

For a helpful checklist of components and timing, review this guide to calculating final pay.

Can Annual Leave Replace Notice?

Annual leave is usually paid out separately and does not substitute for notice unless the award/EA/contract allows it and the arrangement is handled correctly. If you’re agreeing to bring forward the end date and offset with a payment, document what’s being paid as PILON vs leave payout so records are clear.

Deductions and Authorisations

Only make deductions you’re legally allowed to make. You’ll need a clear basis in an award, an enterprise agreement or a written authorisation from the employee (and even then, deductions must be lawful and reasonable). If an employee hasn’t worked their required notice on resignation, ensure any withholding is expressly permitted - and never deduct from accrued annual leave to cover it.

Tax and Payroll Settings

Different components in a termination payment can be taxed differently. Check your payroll platform’s termination codes and tax treatment settings, and speak with your accountant or payroll specialist where needed. Keeping a clean audit trail (calculations, authorisations, and payslips showing breakdowns) will save headaches later.

Best Practices and Documents To Have In Place

Strong contracts and clear policies make notice management simple and fair. Consider the following:

• Employment Contract: Set out notice periods, whether PILON is available, how commissions/bonuses are treated on exit, and any set‑off or deduction clauses allowed by law.
• Workplace Policies: Outline resignation and termination procedures, return of company property, and off‑boarding steps.
• Termination letters and checklists: Confirm the last day, whether notice is worked or paid in lieu, and provide a clear breakdown of the final payout.
• Payroll process map: Steps for calculating entitlements and processing final payments accurately and on time.
• Award/EA references: Keep your applicable instrument bookmarked and up to date. It’s the first place to check for notice, leave loading and deduction rules.

If you expect to use PILON regularly (for example, for senior roles or sensitive positions), it’s worth reviewing your contracts now so they clearly support that option. You can also align your approach with your broader performance and termination processes to reduce risk of unfair dismissal claims.

Worked Notice vs Payment In Lieu: How To Choose

There’s no one‑size‑fits‑all answer. Weigh up:

• Operational risk: Is it safe and sensible for the employee to remain in the business during notice?
• Customer and team impact: Will a handover period help continuity, or could it create issues?
• Contractual rights: Are you clearly permitted to use PILON? Are there any award rules to observe?
• Cost and timing: The dollar difference is usually neutral over the period, but immediate exit may save indirect costs or risks.

If you decide on PILON, give the employee a termination letter confirming the immediate end date, the notice amount paid, superannuation treatment and other entitlements being processed. If you’re unsure how to frame it, our PILON guide is a good reference point.

Compliance Essentials (So You Don’t Trip Up)

• Documentation: Put the decision, dates and calculations in writing. Keep copies of correspondence, payslips and any authorisations.
• Record‑keeping: Keep pay records and termination details for at least 7 years.
• Consistency: Apply your notice rules fairly across similar situations. Consistency helps reduce disputes and claims.
• Process matters: Even when notice is correct, procedural unfairness can create risk. Follow your policies, allow responses where appropriate, and keep notes.
• Timing: Pay final amounts on time under the award/EA/contract or your usual payroll cycle. Late payments cause avoidable escalation.

When you have a clear framework - contract clauses, policies, letters and payroll steps - handling notice becomes predictable and low stress.

Key Takeaways

• For employer‑initiated terminations, the NES sets minimum notice periods - an award, agreement or contract can increase these, but never reduce them.
• No notice is required if you terminate for serious misconduct, but other final entitlements may still be payable.
• PILON lets you end employment immediately and pay the equivalent of the notice period; check your contract and award/EA before using it.
• Super is often payable on PILON as ordinary time earnings, while redundancy severance typically isn’t - confirm treatment for your situation.
• On resignations, employees may owe notice under their award/EA/contract; only make deductions for short notice where expressly permitted and never from accrued annual leave.
• Process final pay carefully: include notice, accrued leave and any redundancy where applicable, and document your calculations clearly.
• Well‑drafted employment contracts, clear policies and a consistent process help you stay compliant and reduce disputes.

If you’d like a consultation on notice period pay, terminations or staff management for your Australian business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.