What you need to know before hiring in Australia: A guide to terminations

When hiring in Australia, you’re unlikely to be thinking about termination policies. Letting employees go, however, is an inevitable part of managing a workforce, so you’ll want to understand the basics well in advance.

Australia has strong employee protections against unjustified dismissals. If you don’t adhere to the minimum notice of termination and pay requirements and fail to provide a valid reason for involuntary termination, you could be subject to wrongful dismissal claims from Australian courts.

Read on to learn everything you need to know about terminating employment in Australia.

7 things to know about terminations before hiring in Australia

• You must establish terms of dismissal in your employment contract. The offer letter to your employees needs to include a termination clause that spells out statutory requirements for notice periods and acceptable reasons for terminating employees without notice.
• Non-compliance with termination requirements can be costly. Australian courts can impose penalties of up to AUD 16,500 per breach for individuals and up to AUD 82,500 for companies.
• Australian laws don’t recognise at-will employment. You can only terminate employees without notice in cases of serious misconduct.
• Generally, you can only dismiss employees if you give notice or pay in lieu of notice. Employees can work through minimum notice periods that vary according to the length of service and enterprise agreements (which are company-specific contracts negotiated through collective bargaining). If you instead decide to pay an employee out and have them stop working for you immediately, you have to pay them in full, including superannuation contributions, for the equal length of their minimum notice period.
• Employees may be entitled to redundancy pay. If an employee is laid off for factors outside their performance (e.g., the job no longer needs to be done by anyone, or if an employer becomes insolvent), they may be entitled to redundancy pay.
• Termination procedures may vary by Award category. Australia has over 100 'Modern Awards,' which are legal documents outlining working conditions across the commonwealth’s different job categories. Certain Awards may have notice periods and redundancy requirements different from the minimums set by National Employment Standards (NES). You can use the Fair Work Ombudsman’s Notice and Redundancy Pay Calculator to check a specific job’s dismissal rules.
• Small businesses have different termination requirements. The Small Business Fair Dismissal Code applies to companies with less than 15 employees and sets separate dismissal rules, including exemption from redundancy pay.

Termination of employment rules in Australia: What are acceptable grounds for firing an employee?

Employees in Australia can leave their position voluntarily for any reason, as long as they give the advance notice stipulated in their employment agreement (usually between one and four weeks). Here are the valid reasons an employee can be terminated involuntarily in Australia:

• Performance. Employers can dismiss an employee for unsatisfactory performance, but only after first warning them of the issue and providing attempts to fix the situation, like offering training or reiterating job expectations.
• Misconduct. An employee can be immediately dismissed for serious misconduct, which the Fair Work Act 2009 defines as willfully risky behaviour that negatively impacts the business or threatens someone’s safety. This can include theft, fraud, or assault. While serious breaches of conduct can result in summary dismissal, meaning immediate termination without a notice period of pay in lieu of notice, lesser misconduct offences, such as showing up to work late, require a more lenient disciplinary procedure.
• Redundancy. If a job no longer needs to be performed because of new technology, insolvency, a business slowdown, or some other reason outside an employee’s control, that employee can be terminated.
• Probation: Employers can dismiss an employee during their first six months of employment without the need for a performance plan if the employee is deemed to be unsuitable for the role. Care should be taken to ensure that anti-discrimination laws aren't breached if terminating during the probation period.

Employers should always write a letter clearly explaining the reason they’re terminating an employee and provide evidence supporting their decision. They should meet with the employee in person to deliver the letter and give the employee the opportunity to answer any questions.

Most Modern Awards require the employer to allow the employee an opportunity to have a support person present at any meeting related to discipline or termination.

What are the mandatory notice periods for employees in Australia?

Australia’s National Employment Standards, which outline working conditions, entitle full-time employees to a termination notice period. This means employers must either provide advance written notice of the day an employee will be laid off or pay the employee out at their full pay rate throughout the entire period of notice.

Minimum notice periods vary depending on an employee’s length of service, as shown in the table below.

Employees aged 46 and up get an additional week’s notice if they’ve completed at least two years of continuous service with a company.

What are the redundancy pay guidelines for employees in Australia?

Employees in Australia who are terminated because of redundancy are generally entitled to their base rate of pay for a certain amount of weeks after their dismissal. They’re paid out according to the length of their tenure, as shown below:

If an employer can’t afford redundancy pay, or if they’ve found a dismissed employee a replacement job, they can apply for relief from the Fair Work Commission. Small business employers who have less than 15 employees are exempt from redundancy pay requirements.

Frequently asked questions about terminating employees in Australia

Do you need a reason to terminate an employee in Australia?

Yes, after an initial probationary period (generally three to six months), you need a valid reason to terminate an employee's agreement. This can include misconduct, poor performance, or redundancy.

Employers need to ensure they follow strict procedural guidelines before dismissing an employee. Besides having a valid reason for terminating an employee, this includes:

• Notifying the employee of the reason in writing
• Allowing the employee to prepare a response for the claimed reasons
• Allowing a support person to be present for any discussion about dismissal
• Providing warnings and a chance for an employee to rectify any performance issues

What is considered misconduct when terminating an employee agreement in Australia?

Instances of serious misconduct include (but aren’t limited to):

• Theft
• Physical assault
• Sexual harassment
• Fraud
• Intoxication at work

In these severe cases, employees can be dismissed immediately without written notice or pay in lieu of notice. Employers should ensure they have strong evidence of any serious breach of conduct before terminating an employee without notice.

In milder, more isolated cases of misconduct, such as unexcused absences or using inappropriate language in the workplace, employers should issue warnings and try to rectify the problem before considering termination proceedings.

What is the difference between an unfair dismissal and an unlawful termination in Australia?

In Australia, the Fair Work Commission can cite employers for violating termination requirements in two different ways: unfair dismissal and unlawful termination.

Fired employees can file an unfair dismissal claim when an employer fires them in a manner that's harsh, unjust, or unreasonable, which includes:

• Not dismissing them for a valid reason
• Not properly notifying them of their dismissal
• Not giving them enough time to respond to dismissal claims
• Failing to allow them to have a support person present for dismissal proceedings
• Failing to provide warnings before termination
• Citing a redundancy when the redundancy wasn’t genuine

To be eligible for unfair dismissal claims, an employee must have worked for at least six months and have a salary below the high-income threshold of AUD  167,500.

Unlawful dismissals, on the other hand, are when employees get fired for reasons that violate the Fair Work Act’s General Protections Provision, including:

• On the basis of a protected anti-discrimination attribute such as race, gender, sexual orientation, age, or disability
• Work absences related to sickness or injury
• Work absences related to maternity or paternity leave
• Exercising workplace rights against an employer

What is always required when an employer terminates an employee in Australia?

All employees in Australia who are laid off should be paid out within a week of the end of the employment relationship. Final pay should include:

• Outstanding salary payments
• Any applicable pay in lieu of notice
• Compensation from accrued but untaken annual leave and other entitlements (such as long service leave if the employee has worked for the company for at least seven years)

What is the law for dismissing a contractor in Australia?

The termination process for independent contractors in Australia can vary depending on the terms of the contract.

Typically, either party may end the agreement by providing notice as specified in the contract. If the contract doesn't specify a notice period, the reasonable notice period will depend on the length of the contract and the nature of the work performed.

If an independent contractor is found to be misclassified, they may be entitled to back pay and termination pay in lieu of notice.

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• Stay compliant with overtime, leave, and termination requirements

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Rippling and its affiliates do not provide tax, accounting or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.