What Is Payment In Lieu Of Notice?

When an employee has resigned or been dismissed, the party instigating the action must give notice. Notice is a period of time given to the other party before the final date of employment. If an employer is ending the employment, written notice must be given to the employee. The amount of time or notice needed depends on multiple factors such as age, length of time they have been working and what is stipulated in the modern award, employment contract or other contract such as enterprise agreement.

That’s where payment in lieu of notice comes in. Instead of working the rest of the notice period, if an employer wants they can just give them the pay they would have earned in that period, or a combination of some pay instead of working and working the rest of the notice period.

Payment in lieu of notice must be the same the employee would have earned if they had worked their full notice period. This amount includes penalty rates, overtime, loadings, monetary allowances, bonuses, incentive based payments, etc.

The advantages of payment in lieu of notice are the employment ends as soon as this payment is made. The employee does not continue to gain leave entitlements for example. This is a legal way of avoiding having the employee work with your business any longer. Obvious disadvantages are the employee will receive pay for the entire notice period without having to work.

Even if an employee is on probation, notice or payment in lieu of notice must be paid. In this situation, the amount of notice or payment in lieu of notice would differ depending on what is stipulated in the employment contract and length of time the employee has worked.

An exception to giving notice or payment in lieu of notice is where an employee has committed serious misconduct (for instance, criminal activity).