How to calculate final pay

In the event of an employee leaving a company, bosses need to make sure they make an accurate calculation of final pay.

Employees have the right to receive any outstanding wages they are owed, which includes any allowances or penalty rates – they should also be paid out for accrued annual leave and loading entitlements.

If applicable, it is an essential part of employer responsibilities to take accrued pro-rata long service leave into account when making final pay calculations. The same can be said for redundancy pay entitlements.

Annual Leave and Loading

When a worker comes to the end of their employment and they are entitled to annual leave and annual leave loading, then their employer must pay out for both entitlements.

From recent court decisions, it seems this situation is also applicable EVEN IF a clause in a modern award, contract or agreement states that either of these entitlements (in particular annual leave loading) should not be payable.

Employees who believe they have not received all the payments they are entitled to can refer their case to the Fair Work Ombudsman, so it is a crucial part of employee management to make sure they are paid correctly.

In situations where the Fair Work Ombudsman (FWO) agrees the employee has been underpaid, legal action can be taken by the FWO to ensure that the employer pays out all the legal entitlements and could possibly result in a heavy fine as well.

Personal Carer’s Leave can also be difficult to calculate and pay. Here is another article that looks at that issue.

Notice on Termination

When an employer is laying off staff it is also important for them to give the correct notice period to avoid being faced with legal action.

Workers who have not yet been continuously employed with a company for more than a year are to be given a one-week notice period, which is extended to two weeks for those employed between one and three years.

Three weeks’ notice is given to those employed for between three and five years, or four weeks for those with five years or more continuous service.


Payroll errors are quite common in businesses, especially those without dedicated HR staff. The fines and punishments for underpaying employees is continuing to grow, so it is important that your business doesn’t underpay its employees. Take a look at our Audit service to see if this might be something that could benefit your business.

Free Download: Termination Letter Template

Need to let an employee go? Use our letter of termination template to ensure you are using the correct format. 

termination letter template