Terminating employment fairly in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Terminating employment in Australia is a structured legal process with specific notice, pay and documentation obligations — getting it wrong can expose a business to unfair dismissal claims, general protections complaints or underpayment liability.
Know the grounds before you act
There are two broad categories of termination: dismissal (initiated by the employer) and resignation (initiated by the employee). Within dismissal, the law distinguishes between:
- Redundancy — the role is no longer required due to genuine operational change
- Performance or conduct — the employee is not meeting requirements or has committed misconduct
- Summary dismissal — instant termination for serious misconduct (theft, violence, serious safety breaches)
The category matters because it determines the process you must follow, the notice or payment in lieu owed, and whether redundancy pay applies. Mixing these up — for example, calling something a redundancy when you promptly hire a replacement — is a common and costly mistake.
Follow a fair process
For performance or conduct issues, a fair process generally includes:
1. Raising the concern with the employee clearly and in writing
2. Giving them a genuine opportunity to respond
3. Considering their response before making a decision
4. Notifying them of the outcome in writing
This is sometimes called procedural fairness or natural justice. It does not mean you can never terminate — it means the decision must be defensible. Employees who have been with you for at least six months (or 12 months in a small business with fewer than 15 employees) are eligible to lodge an unfair dismissal claim with the Fair Work Commission. The Commission looks at both whether there was a valid reason and whether the process was sound.
For serious misconduct, you may be able to act more quickly, but documenting what happened and why you acted remains essential. "Summary dismissal" does not mean "no paperwork".
Redundancy: genuine, procedurally fair, and properly paid
A genuine redundancy requires that the role is no longer needed, that you have complied with any consultation obligations in the relevant Modern Award or enterprise agreement, and that you have considered whether redeployment within the business (or an associated entity) is reasonable.
If those three conditions are met, the employee generally cannot bring an unfair dismissal claim on grounds of redundancy. If any condition is missing — particularly the consultation step — the redundancy may not be considered genuine.
Redundancy pay is separate from notice. Under the National Employment Standards, it scales with years of continuous service, starting at a relatively modest amount for short tenure and increasing substantially for longer-serving employees. Notice (or payment in lieu) is also owed on top of redundancy pay, as is any accrued but untaken annual leave. The NES guarantees four weeks' annual leave per year, and unused leave must be paid out at termination regardless of the reason for ending employment.
Small businesses with fewer than 15 employees are exempt from the NES redundancy pay scale, though they still owe notice and leave entitlements.
Final pay and payroll obligations
Final pay must include:
- Wages for all hours worked up to the termination date
- Payment in lieu of notice if the employee is not working out the notice period
- Accrued but untaken annual leave (and any applicable leave loading under the relevant Award)
- Redundancy pay if applicable
If the employee has a HECS/HELP debt, you should continue deducting repayments in the final pay period as you would for a normal pay run — the deduction is based on the annualised income figure for that period.
Superannuation must be paid on ordinary time earnings right up to the final day. From 2026, the Superannuation Guarantee rate is 12% of ordinary time earnings, paid to the employee's complying fund.
Under Single Touch Payroll, each pay event — including final pay — is reported to the ATO in real time. You must also complete an STP finalisation for the employee by 14 July following the end of the tax year, or sooner if you can, so their income statement is marked "tax ready".
Documentation to keep
Hold onto:
- Written warnings or performance management correspondence
- Notes from any meetings where concerns were raised and the employee was given a chance to respond
- The termination letter, including the stated reason and the effective date
- Final pay calculations and the payslip
- Any signed separation agreement or deed of release if one is used
The Fair Work Commission general time limit for unfair dismissal applications is 21 days from the date the dismissal takes effect. General protections claims have different time limits. Either way, clear records are your best protection if a dispute arises months after the fact.
If the situation involves a Modern Award, enterprise agreement or a complex conduct matter, taking advice from an employment lawyer before acting is money well spent. This article is general information only and does not constitute legal advice.
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