When an employee leaves, it often feels personal for a business owner – whether they’re heading off to new opportunities, or you’ve had to make the tough call to let them go.
Regardless of how they’ve left – by resignation, dismissal or redundancy – employers must meet strict legal obligations for final pay, leave and superannuation.
Let’s take a look at a recent case from the Federal Circuit and Family Court which highlights the importance of paying the right entitlements to ex-employees.
What happened?
In September 2025, the Federal Circuit and Family Court fined Port Melbourne Cosmetic Clinic Pty Ltd (operators of Bayside Skin and Laser Clinic) more than $23,000, and its sole director $4,699, for failing to pay departing employees their full entitlements.
The breaches included unpaid annual leave, missing notice pay and issuing a misleading pay slip for one worker’s final payment.
The clinic also ignored a Fair Work Compliance Notice requesting back pay for two employees.
The Court ruled this to be a serious breach of the Fair Work Act, stressing that employers who disregard compliance directions face increased penalties and reputational damage.
What the law requires
Under the Fair Work Act, an employee’s final pay must include all outstanding wages and entitlements up to their final day of work. This covers unpaid ordinary hours, overtime, allowances and commissions, plus any accrued annual leave and, where applicable, long service leave.
If an employee is dismissed without working their notice period, they must be paid in lieu of notice. Redundancy pay may also apply, depending on length of service and business size. Employers must pay superannuation for all ordinary time earnings up to the last day, even if other payments such as notice or redundancy are made later.
Importantly, timing matters. The courts have made it clear that termination payments must be made promptly – ideally on the employee’s last day or within the period specified by any applicable award or enterprise agreement. Delays, even if unintentional, can constitute a breach.
Where businesses often go wrong
A common issue in underpayment and exit disputes is poor record keeping. Employers must maintain accurate payroll and leave records for at least seven years. When finalising employment, you need to show how each component of the final pay was calculated.
In the Port Melbourne case, the clinic’s misleading payslip aggravated the penalty and served as a reminder that transparency is non-negotiable.
Superannuation, leave loading and other entitlements should be calculated from verified records, not estimates. If you cannot demonstrate how an amount was determined, regulators may assume a breach has occurred.
The takeaway
The Court’s decision serves as a reminder that directors can be personally liable if they are knowingly involved in breaches. In small businesses, where directors often handle payroll or HR matters directly, this risk is especially high. Personal penalties can apply even when the company itself is fined separately.
When an employee leaves, finalising their pay correctly is not just good practice – it is a legal obligation. No matter how the working relationship ended, taking emotions out of it and doing the right thing ensures both sides can move on cleanly.
Having reliable payroll systems, accurate records and proper oversight can prevent costly disputes and penalties, protecting both your people and your business reputation.
By offering practical, ongoing support, we can help businesses to meet their obligations with confidence. To learn more about our services, contact us today.
