Final pay and terminations: getting it right

What goes into a final pay

Every final pay starts with the ordinary stuff: wages for time worked up to the last day, including any penalties, overtime and allowances earned in that final period. From there, what else gets added depends entirely on why and how the employment ended.

• Unused annual leave, paid out on termination including leave loading where the award or agreement provides for it
• Unused long service leave, where the employee's reached the entitlement or a pro rata trigger under their state or territory's law
• Payment in lieu of notice, if you end employment without them working out their notice period
• Redundancy pay, where the role's genuinely redundant and the National Employment Standards or an award or agreement entitles them to it
• Any other amounts owed, such as unpaid allowances, commissions or reimbursements

Unused personal and carer's leave generally doesn't get paid out on termination unless an award, agreement or contract specifically says otherwise. Notice periods and redundancy entitlements come from the National Employment Standards and can be improved by awards and agreements, and the amounts scale with length of service. Check the current Fair Work guidance rather than trusting memory.

Tax and super treatment

Not every part of a final pay gets taxed the same way. Ordinary wages and unused annual leave have their own withholding treatment, while genuine redundancy payments and certain other amounts can be treated as employment termination payments, with different tax rules and caps applying. Payroll software handles most of this automatically, provided the components are coded correctly, which is exactly why the coding matters so much.

Super is payable on ordinary time earnings, and some final pay components attract it while others don't. What each component is classified as determines the treatment, so a final pay entered as one lump sum on a single pay item is almost guaranteed to be wrong somewhere. The ATO publishes detailed guidance on withholding and super for termination payments if you need to check.

The payroll process, step by step

Confirm the termination details

Record the last day worked, the reason for termination and whether notice was worked, paid out, or some combination of both. These facts drive every calculation that follows, so get them confirmed in writing before you touch the pay run.

Check leave balances before you pay them

Payout calculations are only as good as the accrual records sitting behind them. Verify the annual leave balance is current and correct, and check long service leave against your state or territory's rules, which differ on qualifying periods and pro rata entitlements.

Process, report and finalise

Process the final pay using the correct pay items for each component, report it through Single Touch Payroll, and mark the employee as terminated in your software with the right cessation date and reason. STP finalisation makes sure their income statement reflects the final figures. Then confirm the last super contribution goes out by the deadline.

Special situations to handle carefully

Redundancies need genuine redundancy to actually exist, plus consultation obligations under awards to be met, and small business employers have their own specific rules, so check Fair Work guidance before you proceed. Dismissals for serious misconduct change the notice position but not the obligation to pay accrued entitlements. Deductions from final pay, for unreturned equipment say, are tightly restricted; don't withhold anything without checking the rules first, because an unlawful deduction creates a liability all of its own.

Where NextEra fits

Final pays are exactly the kind of infrequent, high stakes calculation that benefits from someone who does them routinely. NextEra's managed payroll handles terminations end to end: component calculations, correct coding, STP finalisation and the super tail that follows. If leave balances in your file have never been verified, a Strategic Finance Review will show you whether the numbers you'd pay out on can be trusted.