Guide
Payment in lieu of notice in Australia: what must be included
Updated
Payment in lieu is not a discount. The Fair Work Ombudsman is specific about what has to be in the number.
What payment in lieu means
The Fair Work Ombudsman describes payment in lieu of notice as happening when the employee's employment ends on the day notice is given and the employee gets paid what they would have been paid if they had worked out the notice period. The amount must equal the full amount the employee would have been paid to the end of the notice period (Fair Work Ombudsman: dismissal and notice).
What has to be included
- incentive-based payments and bonuses
- loadings
- monetary allowances
- overtime
- penalty rates
- any other separately identifiable amounts
For an employee who regularly works penalty-rate shifts, that list is the difference between a correct payment and an underpayment. Base weekly pay is the floor of the calculation, not the answer.
What paying it out changes
If the employer pays out the notice period, the employment ends on the last working day and the employee stops accruing leave and other entitlements from that point. An employee who works the notice period instead keeps accruing leave for the time worked. That difference can matter where a long service leave or annual leave milestone falls inside the notice period.
Part worked, part paid
An employer can let the employee work part of the notice period and pay out the rest. In the Fair Work Ombudsman's own example, an employee given one week's notice on a Tuesday works three days to the Friday and is paid out the remaining two days, and their final pay is made up of the hours worked, the two days in lieu, and the unused annual leave accumulated up to the Friday.
Tax treatment of a payment in lieu depends on the payment type and is outside the scope of this page. Confirm it with the Australian Taxation Office or your accountant before relying on a net figure.