Deductions for insufficient notice
A notice period is an important time at the end of a person’s employment. It is the period of time between an employee handing in their notice and their official last day of work. It gives employers time to prepare for the change, including recruiting a replacement or making alternate staffing arrangements. Employees can use the time to finalise any outstanding matters and prepare a handover.
While the Fair Work Act 2009 (Cth) (Act) sets out minimum periods of notice when an employer wants to terminate the employment of an employee – it doesn’t provide for similar notice requirements when an employee resigns. However, awards, enterprise agreements and contracts of employment typically set out how much notice an employee needs to give when they resign. Unfortunately, sometimes employees leave without giving any notice or don’t work out their whole notice period. The FAQs below answer the enquiries we commonly receive when this occurs.
What do we need to pay an employee who resigns without giving notice or gives insufficient notice?
An employee is entitled to be paid for any outstanding hours worked up to their last day of employment (wages). They are also entitled to be paid any accumulated annual leave (and leave loading if applicable) and long service leave (if any) (accrued leave). The employee does not need to be paid for any part of the notice period not worked unless the employee is on paid leave for that time.
Can we deduct money from an employee's final pay if they don't give notice or sufficient notice?
In all cases, deductions can only be made from wages – not from payments of accrued leave paid out on termination of employment.
Any deduction from wages must be in accordance with the Act or it will be an unlawful deduction (and civil penalties may ultimately be payable).
The rules differ depending on whether the employee is covered by an award or enterprise agreement or is award-free.
Award-covered employees
Under the Act, a deduction from wages can be made if it is authorised by an award. Most modern awards allow the deduction of one week’s wages if an employee (aged 18 and over) does not give the required notice. Provided the deduction is made in compliance with the relevant award, separate authorisation from the employee is not required to make the deduction.
Agreement-covered employees
Under the Act, a deduction from wages is permitted if it is authorised by the employee in accordance with an enterprise agreement. Many enterprise agreements include a provision allowing for deductions from pay if an employee does not give the requisite notice. Employers should comply with the procedure set out in the enterprise agreement for the employee to authorise the deduction.
Award-free employees
For employees not covered by a modern award or enterprise agreement, a deduction from wages can only be made if the specific amount of the deduction is authorised in writing by the employee and the deduction is principally for the employee’s benefit. The employee may withdraw their authorisation in writing at any time.
All employees
Whether an employee is covered by an award, enterprise agreement or neither, any deduction from wages because of insufficient notice should not be unreasonable in the circumstances. The Act provides that a term of an award, enterprise agreement or contract of employment has no effect to the extent it permits an employer to make an unreasonable deduction if the deduction directly or indirectly benefits the employer. Unlike awards which limit the amount that can be deducted to one or two weeks’ pay, some enterprise agreements permit an amount equal to the whole notice period to be deducted if the required notice is not given. What is reasonable should be considered on a case-by-case basis and given most employers pay fortnightly, in practice there is unlikely to be outstanding wages of significant amounts due on termination of employment.