Payment in Lieu of Notice in Australia: Notice Periods and Tax

Fair Work notice periods under the NES

The minimum notice period depends on your continuous service on the day you are given notice. It starts the day after you are told and ends on your last day of employment.

Longer notice and exceptions

An award, enterprise agreement or employment contract can require longer notice, but a contract cannot give you less than the NES or your award. Notice applies during probation too. Continuous service includes unpaid leave such as unpaid parental leave, but not unauthorised absence, and casual service usually does not count.

NES notice does not apply to casuals, employees engaged for a specified period, task or season, people dismissed for serious misconduct (such as theft, fraud, assault or being intoxicated at work), trainees employed only for a set period or the length of a training arrangement (apprentices excepted), daily-hire workers in building and construction or meat processing, and some seasonal weekly-hire meat workers. Even after serious misconduct, the employer must still pay time worked and unused annual leave.

What payment in lieu of notice must include

The Fair Work Ombudsman says payment in lieu must equal the full amount you would have been paid had you worked to the end of the notice period. That includes incentive payments and bonuses, loadings, monetary allowances, overtime, penalty rates and any other separately identifiable amounts. This is broader than NES redundancy pay, which is calculated on your base rate for ordinary hours only.

Your employer can let you work the notice, pay it all out, or combine the two. If the notice is paid out, employment ends on your last working day and you stop accruing leave. Leave and public holidays that fall within a notice period do not extend it, and your employer cannot make you take annual leave as part of it.

When it has to be paid

Under the NES, payment in lieu of notice must be made before or on the day of termination. That is earlier than other final pay, which most awards require within 7 days of the last day. Your final pay should also include wages owing, unused annual leave and leave loading, and any long service leave or redundancy pay that applies. Sick and carer's leave is not paid out under the NES.

How payment in lieu of notice is taxed

The ATO lists payment in lieu of notice as an employment termination payment. Unless it is part of a genuine redundancy, it is a non-excluded ETP reported with code O, and the concessional rates apply only up to the smaller of the ETP cap ($270,000 in 2026–27) and the whole-of-income cap. The whole-of-income cap is $180,000 minus the other taxable payments you received in the income year, including salary already paid. Up to that cap the rate is 32% under preservation age (60) or 17% from 60, including the Medicare levy. Above it, the rate is 47%.

The employer withholds at those rates under Schedule 11, and the ETP appears on your income statement. Because the concessional rate is a cap rather than a flat tax, the ATO recalculates when you lodge. If you earn more later in the year, for example in a new job, and the payment had a code O, you may pay more tax on it in your return.

Worked examples (2026–27)

Example 1, ordinary dismissal: Priya, 47, earns $78,000 and has 7 years' service. She is dismissed in February (not for redundancy), so the NES gives her 4 weeks plus a week for being over 45: 5 weeks, paid out at $1,500 a week = $7,500. She has been paid $46,000 of salary so far, so her whole-of-income cap is $134,000. The whole payment fits under it and is taxed at 32%: $2,400.

Example 2, high earner: an executive who has already received $170,000 of salary in 2026–27 is paid $60,000 in lieu of 3 months' notice. The whole-of-income cap is only $10,000, so $10,000 is taxed at 32% and $50,000 at 47%, a total of $26,700. Timing a termination payment into a new income year can therefore change the tax considerably.

Example 3, genuine redundancy: if Priya's job had been abolished, her $7,500 in lieu of notice and 13 weeks of NES redundancy pay ($19,500) total $27,000. That is under her tax-free limit of $61,205 ($13,598 + 7 × $6,801), so tax on the package is $0. The ATO confirms a genuine redundancy payment may include payment in lieu of notice.

Super on payment in lieu of notice

Unlike redundancy pay, payment in lieu of notice attracts super. From 1 July 2026, under Payday Super, super guarantee is 12% of "qualifying earnings", and the ATO's qualifying earnings table lists payment in lieu of notice as both ordinary time earnings and qualifying earnings, for all termination reasons and regardless of its tax treatment. In the ATO's example, of a $40,000 genuine redundancy package paid in October 2026, only the $10,000 paid in lieu of notice is qualifying earnings, so the super guarantee is $1,200. Unused annual leave, long service leave and personal leave paid on termination do not attract super.

Checklist for your final pay

Before you sign anything or lodge your return, check:

• The notice period matches the NES table, or your award, agreement or contract if it gives more, including the extra week if you are over 45.
• The amount includes the overtime, allowances, loadings and penalty rates you would have earned.
• It was paid on or before your last day, and super guarantee was calculated on it.
• Your income statement shows it as an ETP with the right code (R if part of a genuine redundancy, otherwise O), separate from unused leave at Lump sum A.
• If something is wrong, raise it with your employer first; the Fair Work Ombudsman's Notice and Redundancy Calculator checks the entitlement.