Managing people

What's the go with car allowance and termination?      

When employment is terminated, can a car allowance be added to the rate of pay used to calculate accrued annual leave payments? Learn more about allowances here.  

30 September 2021

Allowances are paid to employees to cover various employment-related expenses incurred on the job. A car allowance, paid when an employee has to use their own car in the course of employment, is a common example.

When an employee who has received such an allowance resigns or is dismissed, are they entitled to be paid the car allowance on any annual leave entitlement that is paid out? 

The answer depends on what is the employee’s “ordinary pay” at the time of termination. 

If the car allowance is a reimbursement for expenses the employee incurred on the employer’s behalf — then that would fall outside “ordinary pay”. In other words, if the employee was reimbursed for individual expenses, then that is not ordinary pay. 

However, if the payment is included in a “package” then it is not possible to differentiate individual payments. In such an instance, the payment would form part of the total package and so its separate nature would be lost in the package. The cash value would be included in ordinary pay, and the employee’s entitlements would be calculated based on that (higher) rate.

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