Final pay and processing leavers in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
When an employee leaves, their final pay must include all outstanding wages, accrued annual leave, and any applicable redundancy or notice pay — all paid by the next scheduled pay date or sooner if required by the applicable award or enterprise agreement.
What must be included in final pay
Final pay is not simply the last regular wage. You need to calculate and include:
Unpaid wages for any hours worked up to the termination date, including any overtime or penalty rates owed under the relevant Modern Award or enterprise agreement.
Accrued but untaken annual leave paid out at the employee's ordinary rate of pay (plus any applicable leave loading, typically 17.5%, if the award or contract provides for it). Under the National Employment Standards, employees accrue four weeks of annual leave per year, and this accrual does not lapse on termination — it must be paid out.
Redundancy pay, where applicable. The National Employment Standards set out a sliding scale based on years of continuous service. An employee dismissed for genuine redundancy with one year of service receives a minimum payout; the entitlement rises with each additional year. Employees terminated for cause, casuals, and some fixed-term employees are generally not entitled to redundancy pay, but check the relevant award.
Payment in lieu of notice, if you choose not to have the employee work out their notice period, or if the employee is entitled to notice and you terminate immediately. The notice period — and therefore the payment — depends on the employee's length of service and the terms of their contract.
Long service leave, where applicable. Entitlements and rules vary by state and territory, so check the legislation for wherever the employee is based.
Tax and superannuation on final pay
Different components of final pay are taxed differently, which is where most errors occur.
Regular wages and accrued annual leave are taxed at the employee's marginal rate under the standard PAYG withholding rules, applying the tax-free threshold and any HECS/HELP repayment obligation if the employee has a study debt. If the employee has a HELP debt, you continue to withhold the applicable band amount on any ordinary earnings component right up to and including the final pay.
The Medicare levy of 2% applies in the usual way on taxable components.
Redundancy pay has its own tax treatment. Genuine redundancy payments receive a tax-free component up to a threshold set by the ATO each income year; amounts above the threshold are taxed as employment termination payments (ETPs) at concessional rates depending on the employee's age and the type of ETP. Do not apply standard PAYG rates to the redundancy component — use the ATO's ETP withholding rates and issue an ETP payment summary.
Superannuation Guarantee contributions are payable on ordinary time earnings up to termination, at the current rate of 12%. Super is not ordinarily payable on genuine redundancy payments or ETPs, but it is payable on any regular wages or leave paid out as part of the final pay. Calculate super on those components and pay it to the employee's complying super fund by the quarterly SG due date. Missing this date triggers the Superannuation Guarantee Charge, which is not tax-deductible.
Single Touch Payroll finalisation
Under Single Touch Payroll, you report each pay event — including the final pay — to the ATO at or before the time you pay the employee. This happens automatically if your payroll software is STP-enabled.
Once you have processed the final pay, you also need to finalise the employee's income statement in STP. For most employees, this must be done by 14 July following the end of the financial year. However, if you are a large withholding employer or if the employee requests early finalisation (for example, to lodge their tax return), it is good practice to finalise their record sooner. Finalisation marks their year-to-date figures as tax-ready and allows the employee to see a finalised income statement in their myGov account.
Do not issue a separate payment summary if you are reporting through STP — the income statement in ATO online services replaces it.
Practical steps when processing a leaver
Work through this sequence each time:
1. Confirm the termination date and reason, as both affect entitlements.
2. Calculate ordinary wages to the last day worked.
3. Calculate accrued annual leave balance and any leave loading.
4. Determine whether notice applies — was it worked, paid in lieu, or waived by agreement?
5. Check for genuine redundancy entitlement and calculate using the NES scale.
6. Check state or territory long service leave obligations.
7. Apply the correct tax treatment to each payment component separately.
8. Calculate super on the ordinary earnings components.
9. Process the pay and lodge via STP on or before payment date.
10. Finalise the STP income statement promptly — by 14 July at the latest.
Keeping a written record of each step protects you if the employee later disputes the amounts or lodges an underpayment claim with the Fair Work Ombudsman.
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