How to Legally Terminate an Employee in Australia: Employer Guide
Step-by-step guide for Australian employers on legally terminating an employee. Covers valid reasons, procedural fairness, notice periods, final pay timing, unfair dismissal risks, and the small business fair dismissal code — everything you need to get it right.
Valid reason required: what counts and what doesn't
Under Australian employment law, you must have a valid reason to dismiss an employee. Valid reasons generally fall into two categories: performance-related (the employee is not meeting the inherent requirements of the role despite being given an opportunity to improve) and conduct-related (the employee has engaged in misconduct such as theft, fraud, safety breaches, or serious insubordination). Redundancy — where the role itself is no longer needed — is also a valid reason, but triggers separate redundancy pay obligations. What is not a valid reason includes: temporary illness or injury, filing a workers compensation claim, union membership or activity, pregnancy or parental leave, making a workplace complaint, or any characteristic protected under anti-discrimination law (age, race, gender, disability, religion, sexual orientation). Dismissing for an invalid reason exposes the business to general protections claims under Part 3-1 of the Fair Work Act, which have no minimum service requirement and carry uncapped compensation. Always document the specific, valid reason before initiating termination.
Procedural fairness: the process matters as much as the reason
Even with a valid reason, a dismissal can be found unfair if the employer did not follow a fair process. The Fair Work Commission assesses procedural fairness against several criteria: Was the employee notified of the reason for possible dismissal? Were they given an opportunity to respond? Were they allowed to have a support person present? Was the response genuinely considered before making a final decision? Did the employer have a reasonable basis for concluding that the reason was valid? For performance issues, this means you should have provided clear feedback, a reasonable timeframe to improve, and support or training where appropriate. For misconduct, you should have conducted a proper investigation, put the allegations to the employee, and allowed them to respond before deciding on the outcome. The entire process should be documented in writing — meeting notes, letters, emails, and file notes all form part of the evidence if the dismissal is challenged. Skipping steps in the interests of speed is the single most common reason employers lose unfair dismissal cases at the Fair Work Commission.
Notice periods: how much notice you must give
Unless an employee is dismissed for serious misconduct (which allows summary dismissal without notice), you must provide the minimum notice period set out in the National Employment Standards or the applicable modern award — whichever is greater. The NES minimum notice periods are: 1 week for employees with less than 1 year of service, 2 weeks for 1-3 years, 3 weeks for 3-5 years, and 4 weeks for 5 or more years. Employees over 45 years of age with at least 2 years of continuous service receive an additional week. You can choose to pay in lieu of notice instead of requiring the employee to work the notice period — this means paying them their full pay for the notice period and ending employment immediately. Some awards and enterprise agreements provide for longer notice periods, and individual employment contracts may also specify longer periods. Use our Notice Period Calculator to determine the exact notice required based on the employee's length of service, age, and applicable instrument. The notice period is based on the employee's continuous service with you, not their total work history.
Final pay timing: when the last paycheck is due
When employment ends, the employee is entitled to be paid all outstanding amounts within 7 days of the termination date, or on the next regular pay cycle — whichever comes first. The final pay must include: wages for hours worked up to the termination date, any accrued but untaken annual leave (paid at the employee's base rate, plus leave loading if applicable under the award or contract), long service leave if the employee qualifies, payment in lieu of notice (if applicable), and any other entitlements owing such as outstanding expense reimbursements or bonus payments. Redundancy pay, if applicable, must also be included. You do not need to pay out personal/carer's leave — it does not accrue as a financial entitlement on termination. Superannuation contributions must be paid on all OTE components of the final pay. Late payment of final entitlements can result in penalties under the Fair Work Act and may also trigger a claim for underpayment. Use our Leave Calculator to determine accrued leave balances and our Notice Period Calculator to calculate payment in lieu of notice.
Unfair dismissal risk: who can claim and what it costs
An employee can lodge an unfair dismissal application with the Fair Work Commission if they believe their dismissal was harsh, unjust, or unreasonable. To be eligible, the employee must have completed the minimum employment period (6 months for non-small businesses, 12 months for small businesses with fewer than 15 employees) and earn below the high-income threshold ($175,000 as of 1 July 2025) or be covered by a modern award or enterprise agreement. Applications must be filed within 21 days of the dismissal taking effect. The FWC first attempts conciliation (a phone conference to negotiate a resolution), and if that fails, the matter proceeds to a hearing. Remedies available include reinstatement (rarely ordered) and compensation of up to 26 weeks' pay. The average unfair dismissal settlement at conciliation is between $5,000 and $15,000, but complex cases that proceed to hearing can result in much higher orders. Even if you win, the legal costs and management time involved make it essential to get the process right from the start. Prevention — through proper documentation, procedural fairness, and genuine performance management — is far cheaper than defending a claim.
Small business fair dismissal code
If your business has fewer than 15 employees (counted at the time of dismissal, including casual employees engaged on a regular and systematic basis), you are covered by the Small Business Fair Dismissal Code. This code provides a simplified set of rules: for underperformance, you must have warned the employee that their performance is not meeting expectations and given them a reasonable chance to improve. The warning should specify the issue, what improvement is expected, and the consequence of not improving. The warning does not have to be in writing, but written warnings are much easier to prove if challenged. For misconduct, summary dismissal is allowed if the employer genuinely believes the employee's conduct is sufficiently serious — such as theft, fraud, violence, or serious safety breaches. The employee must still be given an opportunity to respond to allegations. Following the code provides a complete defence to an unfair dismissal claim — the FWC must dismiss the application if the code was followed. The code is available as a free checklist from the Fair Work Ombudsman, and every small business employer should keep a copy in their HR file.
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General information and estimates only — not legal, financial, or tax advice. Always verify with the Fair Work Ombudsman (13 13 94) or a qualified professional.
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