How to calculate final pay in Australia
A complete guide to calculating final pay (also called termination pay) when employment ends. Includes outstanding wages, leave entitlements, notice periods, redundancy and tax under Australian law. When terminating an employee, accurate final pay calculation is critical for Fair Work compliance.
Written by
Georgia Morgan
This guide provides general information about calculating final pay in Australia. It does not constitute legal, HR, or professional advice and should not be relied on as a substitute for advice specific to your business, workforce, or circumstances.
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Key takeaways
- Final pay includes outstanding wages, all accrued annual leave with loading, and long service leave where eligible, but unused sick/personal leave is not paid out
- If notice is not worked, payment in lieu is required (except in summary dismissal), and genuine redundancies attract redundancy pay on the NES scale
- Outstanding wages and accrued leave are taxed under normal PAYG, while payment in lieu and genuine redundancy are Employment Termination Payments with ATO tax-free limits
- Most awards require final pay within 7 days of the last working day, so pay as soon as practicable to avoid underpayment penalties
What is final pay?
Final pay (also called termination pay) is the total amount owed to an employee when their employment ends — through resignation, dismissal, or redundancy. It combines everything the employee has earned but not yet been paid, plus any leave and termination entitlements, less tax.
The final pay formula
Outstanding wages + unused leave payout (incl. loading) + allowances & bonuses + redundancy or notice pay − tax withholdings = final pay
The exact components depend on the employee's leave entitlements, length of service, notice period, and the reason employment ended. Work through each one below.
Final pay components
Use this checklist to ensure all entitlements are included in final pay.
Outstanding wages
All hours worked but not yet paid, including penalties and loadings
Annual leave payout
All accrued but untaken annual leave, plus leave loading if applicable
Long service leave (check eligibility)
Depends on state/territory laws and length of service
Notice period or payment in lieu
If notice not worked, pay in lieu is required (except summary dismissal)
Redundancy pay (if applicable)
Only for genuine redundancies with 12+ months service (not small business)
Sick/personal leave is NOT paid out
Unused personal leave lapses when employment ends
6 steps to final pay calculation
Follow these steps in order to calculate an accurate final payment.
Calculate outstanding wages
Work out all unpaid wages up to and including the employee's last day of work.
Key points:
- Include all ordinary hours worked but not yet paid
- Add any approved overtime at the correct penalty rate
- Include shift loadings and allowances earned
- Check the timesheet for the final pay period is accurate
Calculate annual leave payout
All unused annual leave must be paid out when employment ends, including leave loading.
Key points:
- Check the current leave balance in your system
- Annual leave is paid at the ordinary rate of pay
- Add annual leave loading (usually 17.5%) if applicable under the award
- Leave loading must be paid on termination even if the award says otherwise
Check long service leave entitlements
Long service leave is governed by state/territory law and may be payable on termination.
Key points:
- Check the employee's state/territory for LSL rules
- Most states: 8.67 weeks after 10 years of service
- Pro-rata may apply after 5-7 years depending on jurisdiction
- Termination reason can affect pro-rata entitlement
Determine notice period or payment in lieu
Calculate whether notice has been worked or if payment in lieu of notice is required.
Key points:
- Minimum notice under NES: 1-5 weeks based on service and age
- < 1 year service = 1 week notice
- 1-3 years = 2 weeks; 3-5 years = 3 weeks; 5+ years = 4 weeks
- Add 1 week if employee is over 45 with 2+ years service
Calculate redundancy pay if applicable
If the role is genuinely redundant, calculate redundancy pay using the NES scale.
Key points:
- Requires 12+ months continuous service
- Ranges from 4 weeks (1-2 years) to 16 weeks (9-10 years)
- Small businesses (< 15 employees) are generally exempt
- Some awards or contracts provide higher entitlements
Finalise, tax and pay
Add all components together, apply tax correctly, and pay within the required timeframe.
Key points:
- Pay as soon as practicable or in next pay cycle
- Some awards specify timing (e.g., within 7 days)
- Provide a detailed payslip showing all components
- Genuine redundancy payments have tax-free limits
When must final pay be paid?
There's no single deadline in the National Employment Standards (NES). The timeframe comes from the employee's modern award, enterprise agreement, or employment contract. Most awards require final pay within 7 days of the last working day.
Where no timeframe is specified, the Fair Work Ombudsman recommends paying by the next scheduled pay day at the latest. Pay as soon as practicable — late final pay can amount to an underpayment and attract penalties. If you discover a shortfall, you can estimate underpayment backpay to size the liability. If the employee is leaving near year end, fold the final pay into your EOFY payroll process.
Confirm any accrued balances against your records before you process the payment — see how to manage annual leave requests so balances stay accurate right up to the final day.
Minimum notice periods
Under the National Employment Standards, minimum notice depends on length of service.
| Period of continuous service | Minimum notice |
|---|---|
| Less than 1 year | 1 week |
| 1 year to less than 3 years | 2 weeks |
| 3 years to less than 5 years | 3 weeks |
| 5 years or more | 4 weeks |
| Over 45 years old with 2+ years service | +1 week |
Redundancy pay scale
NES redundancy entitlements for employees with 12+ months service (employers with 15+ employees).
| Period of continuous service | Redundancy pay |
|---|---|
| At least 1 year but less than 2 years | 4 weeks |
| At least 2 years but less than 3 years | 6 weeks |
| At least 3 years but less than 4 years | 7 weeks |
| At least 4 years but less than 5 years | 8 weeks |
| At least 5 years but less than 6 years | 10 weeks |
| At least 6 years but less than 7 years | 11 weeks |
| At least 7 years but less than 8 years | 13 weeks |
| At least 8 years but less than 9 years | 14 weeks |
| At least 9 years but less than 10 years | 16 weeks |
| 10 years and over | 12 weeks |
Note: The 10+ years rate reduces to 12 weeks as employees approaching retirement have less need for income support.
Tax on final pay
Getting the tax right matters as much as the gross figure. Final pay is taxed in two broad ways:
- Outstanding wages and accrued leave (annual and long service leave) are taxed under normal PAYG withholding, though unused leave can attract concessional rates in some cases.
- Termination payments such as payment in lieu of notice and genuine redundancy pay are treated as Employment Termination Payments (ETPs). A genuine redundancy has a tax-free limit the ATO updates each year.
Check current ATO thresholds
ETP caps and the genuine-redundancy tax-free limit change each financial year. Confirm the current figures on the ATO's taxation of termination payments guidance before you finalise, and reconcile it as part of your EOFY payroll.
Common final pay mistakes
Avoid these errors that commonly lead to underpayments and disputes.
Forgetting annual leave loading
Consequence: Leave loading must be paid on termination even if your award says it isn't
Solution: Always include 17.5% leave loading (or award-specific rate) when paying out annual leave. Use automated payroll systems .
Missing long service leave
Consequence: LSL can be a significant entitlement, especially for long-serving staff
Solution: Check your state's LSL laws. Use our long service leave guide .
Wrong notice period calculation
Consequence: The +1 week for over-45s with 2+ years is often missed
Solution: Always check age and service length together. Track with HR software .
Applying small business exemption incorrectly
Consequence: Must have fewer than 15 employees at time of termination notice
Solution: Count all employees (including casuals) at the time of giving notice. Review termination procedures .
Delaying final pay
Consequence: Some awards require payment within 7 days; delays can attract penalties
Solution: Process final pay in the next regular pay cycle or sooner. Use payroll integration .
Long service leave payout rules vary by state
LSL entitlements on termination are governed by state and territory legislation. Start with our long service leave guide, then check the rules for your jurisdiction:
Tips for accurate final pay
Build these habits into your offboarding & exit records to keep final pay accurate and audit-ready — working through an award compliance checklist helps confirm every entitlement is paid at the correct award rate.
Use a checklist
Create a termination checklist to ensure no entitlements are missed.
Check the award
The relevant award may provide entitlements above NES minimums.
Document everything
Keep records of calculations in case of a future dispute or audit.
Verify leave balances
Double-check leave records with the employee before final calculation.
Consider tax implications
Genuine redundancy has tax-free limits; other payments are fully taxed.
Provide detailed payslip
Break down each component so the employee understands their final pay.
Regulatory sources
This guide is aligned with official Australian workplace and tax regulations.
How RosterElf helps with final pay
Purpose-built tools to make final pay faster, easier, and compliant for Australian businesses.
Related guides
More resources for payroll and compliance.
Simplify final pay calculations
RosterElf integrates with your payroll system to automate leave balances, award rates, and final pay calculations. Built for Australian small businesses.
Frequently asked questions
- Final pay must include: outstanding wages (including penalties/loadings), all accrued annual leave (with loading), long service leave if applicable, and payment in lieu of notice if not worked. See our leave entitlements guide for more detail.
- No. Under Australian law, unused personal (sick) and carer's leave is not paid out when employment ends. It simply lapses. Only annual leave and long service leave are paid out.
- Yes, annual leave loading must be paid on termination if the employee would receive it when taking leave. Fair Work has confirmed this applies even if the award says loading isn't payable on termination.
- Redundancy pay is required when an employee's job no longer exists (genuine redundancy), they have 12+ months continuous service, and the employer is not a small business (15+ employees at the time of notice). See the redundancy definition.