Painless Payroll Compliance
Timing and Deadlines for Final Pays
An employee’s final pay must be processed and paid into their bank account by their final regular payday. However, employers can choose to settle it earlier, such as on the employee's last physical day of work.
When Does A Final Pay Get Paid?
When an employee resigns or their contract concludes, tracking your exact payroll deadlines is vital to remain fully compliant.
The absolute legal deadline for distributing a final pay packet is the scheduled pay day for the employee's final period of employment. While this regular pay date is the latest allowable limit, employers are not required to wait until the end of the pay cycle.
If your administrative workflows allow, the final pay can be calculated and disbursed on the employee's actual last day of work.
The Secret to Stress-Free Offboarding
Maintaining spotless payroll records is the ultimate secret to taking the operational pain out of final pays.
Up-to-date payroll software allows you to instantly view exact leave balances, eliminating the need for a stressful manual audit scramble when a staff member departs.
What Elements Form a Compliant Final Pay?
A compliant final pay run must systematically bundle all final hours worked since the last pay cycle alongside a total payout of any unused annual holidays and accrued alternative days off.
Final Hours Worked
You must make a comprehensive payment for all the regular hours or shifts the employee physically worked since their last regular pay run up until the official end of their employment.
Unused Allocated Annual Holidays
You must fully payout any remaining, allocated annual leave hours carried over from the employee's previous 12 months of continuous employment.
Accrued Alternative Holidays
You must pay any outstanding alternative holidays (commonly referred to as days off in lieu) that the employee has accrued since their employment started.
8% of Gross Income
You must calculate and pay 8% of the employees gross income since their last annual leave anniversary.
The Calculation Traps
For employees with 12 or more months of service, outstanding leave balances extend their employment on paper, which can trigger mandatory payouts for upcoming public holidays. Additionally, final allocated leave payouts attract an extra 8% entitlement calculation.
The Public Holiday Extension Rule
If an employee has worked for your business for 12 months or longer, any outstanding annual holidays they possess effectively extend their official period of employment outward on the calendar.
If a recognised public holiday occurs during this artificial extension window, you are legally obligated to pay them for that public holiday.
Example Of Application:
The employee’s last physical day of work is the day right before Good Friday and they have two weeks (10 days) of annual holidays owing to them.
Their period of employment is extended forward on paper by those 10 days, pushing their end date past the Easter weekend.
The employer must pay them for the 10 days of leave, plus another two full days of pay to cover the Good Friday and Easter Monday public holidays.
The 8% Accumulation Rule
Any outstanding annual holidays remaining on the books at termination continue to attract their own annual holiday entitlement. This means that your final leave payout must feature an extra 8% calculation on top of the base leave balance.
Example Of Application:
The employee has 80 hours (two weeks) of allocated annual holidays owing to them.
You cannot simply pay them for 80 hours.
You must pay them for those 80 hours, plus 8% of the gross value of those 80 hours to cleanly settle the account.
Frequently Asked Questions
Can an employer hold back a final pay until the following month?
No. Legally, the final pay must be settled on the standard payday for their final period of employment at the absolute latest.
Can I pay an employee their final pay on their last physical day of work?
Yes. The final pay can absolutely be paid before the regular pay cycle deadline, such as on the employee's final day on the job.
What types of leave must be paid out when an individual leaves?
The employer must pay out all outstanding allocated annual holidays from the previous 12 months, as well as any alternative holidays accrued along the way. They must also pay 8% of the employees gross income since their last annual leave anniversary.
Why do components of a final pay need to be broken down separately?
Displaying components clearly is essential because each distinct payment type must be shown separately on the employee's payslip to maintain accuracy, which is one of the primary complexities of payroll.
Does a worker's unused annual leave impact their public holiday pay?
Yes. If they have worked for you for a year or more, their outstanding annual leave extends their employment timeline. If a public holiday falls within that extended timeframe, it must be paid out.
What must be added to an annual holiday balance at termination?
Outstanding annual holidays attract an additional 8% annual holiday entitlement calculation that must be factored into the final payout sum.