Knowing the answer to this question will avoid a headache later. Whilst the Fair Work Act, Modern Awards, Agreements, and the LSL Act will determine the facts for your particular employee, we have outlined the components of termination pay that may or may not contain commissions generally for those employees who are paid salary plus commissions.
Whilst some will argue that a regular commission should be considered when calculating such termination payments, this is not the case in all components.
Payment in lieu of notice
The Fair Work Act provides that an employer is to provide the relevant notice of termination to an employee based on the relevant industrial instrument or employment agreement. The amount to be paid in lieu of notice is the full rate of pay for the hours the employee would have worked had they remained to work out that notice period.
The Fair Work Act defines the ‘full rate of pay’ as base pay plus the following: incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates, and any other separately identifiable amounts that the employee would have been paid if they worked those days.
Annual leave and redundancy pay
The National Employment Standards provide that Annual leave on termination and redundancy pay are payable at an employee’s base rate of pay.
The Fair Work Act defines the ‘base rate of pay’ as the employee’s ordinary weekly rate of pay for their ordinary hours of work, excluding incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates, and any other separately identifiable amounts.
Long service leave
The relevant state or territory legislation defines ‘ordinary pay’ when paying pro rata long service leave on termination.
Generally, an average of any bonus or commission payments would be included in an employee’s ordinary pay, although this may depend on the regularity and nature of payment, and the employment agreement. It is imperative to review the relevant legislation to ensure you understand the correct inclusions and how averaging applies.
For assistance in determining how your termination payments are to be calculated, contact us at [email protected]
Information in HR Advice Online guides and blog posts is meant purely for educational discussion of human resources issues. It contains only general information about human resources matters and due to factors such as government legislation changes, may not be up-to-date at the time of reading. It is not legal advice and should not be treated as such.