What Severance Pay Rules Must Employers Follow in Papua New Guinea?

Which Employees Qualify for Severance Pay?

• Employees whose contracts, company handbook, or collective agreements promise a severance or redundancy payment on termination.
• Employees made redundant where your company has a written redundancy policy that sets out a severance formula or ex gratia package.
• Long-serving employees where your past practice has created a clear expectation of severance on redundancy or business closure.
• Employees covered by enterprise or industry-level agreements that include separation or redundancy benefits.
• Foreign and local employees alike, if their individual contracts specify severance or end-of-service benefits.
• Fixed-term employees whose contracts include a severance clause triggered by early termination without cause.

What Are the Legal Timelines for Paying Severance?

Papua New Guinea’s Employment Act focuses on paying final wages and accrued entitlements promptly when employment ends, rather than setting a specific statutory deadline for severance. In practice, you should aim to calculate and pay all final amounts - salary, leave, notice pay, and any contractual severance - on the employee’s last working day or within the next regular payroll run. Many employers target payment within 7 to 14 days to avoid disputes and cash-flow surprises for the employee. If your contract or policy sets a stricter deadline, that will bind your company. Always document the calculation and obtain written acknowledgment from the employee when payment is made.

What Penalties Apply if Severance Is Not Paid Correctly?

If you fail to pay contractual severance or other termination entitlements in Papua New Guinea, your company risks breach-of-contract claims and statutory non-compliance under the Employment Act. Disputes are typically handled through the Department of Labour and Industrial Relations, the Industrial Registrar, or the courts, and can quickly become costly in time and reputation even where the sums involved are modest.

• Employees may claim unpaid amounts plus interest or damages.
• Labour authorities can order payment and may scrutinize your wider employment practices.
• Non-payment can escalate into unfair or unlawful termination claims.
• Your company’s reputation with workers, unions, and regulators can suffer lasting damage.
• Legal and advisory costs often exceed the original severance amount.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record can shift day-to-day HR administration and payroll compliance, but it does not remove your obligation to fund lawful termination and severance-type payments. In Papua New Guinea, the EOR is usually the legal employer on paper, while your company directs the work and commercial decisions. If you instruct a termination, you will generally be responsible for the cost of notice, accrued leave, and any contractual severance the EOR has agreed on your behalf. A clear EOR services agreement should spell out who bears which liabilities, how severance formulas are set, and how disputes with workers are managed.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll helps your company stay aligned with Papua New Guinea’s Employment Act by standardizing contracts, documenting redundancy and severance terms, and making sure final-pay calculations are consistent. Your team gets locally compliant templates that clearly set out notice, leave, and any severance or redundancy formulas, reducing the risk of ad hoc promises that later become disputes. With centralized records, you can quickly evidence what was agreed if a former employee challenges their payout.

Playroll’s platform also streamlines final payroll runs, so you can pay all termination amounts on time and in the correct currency, whether the worker is local or an expatriate. Automated workflows flag upcoming contract expiries, probation completions, and redundancy projects, giving you time to budget for any severance-type obligations. That way, you protect your cash flow, your reputation, and your compliance position in Papua New Guinea.