Redundancy – even if it is a voluntary – is always difficult. All employees made redundant have the right to know that they have received their correct redundancy pay. However, sometimes they lack sufficient information to make that determination. If you would like to know more about how to calculate redundancy pay, this article discusses how to calculate it and when an employee has the right to receive it.
The Fair Work Act 2009 (Cth) governs Australian workplaces. Further, the National Employment Standards (NES) apply to everyone employed in the national workplace relations system, irrespective of the particular industrial instrument or employment agreement. The NES began operating on 1 January 2010.
If an employee is made redundant, they usually have the right to receive redundancy pay (also known as severance pay). If your employer hired you under a registered employment agreement, that agreement determines your redundancy pay. It could also provide for entitlements. However, in general, an employer calculates redundancy pay with reference to an employees’ period of employment.
In these instances, the formula for calculating redundancy pay equals the redundancy pay period multiplied by your base rate of remuneration.
Base Rate of Pay
Unless you are a pieceworker (where you are paid for a piece of work), your base rate of pay is the amount paid for ordinary hours of work. Your base rate (and therefore your redundancy pay) does not include:
- Overtime or penalty rates;
- Any incentive-based payments or bonuses;
- Any monetary allowances provided; or
- Any other separately identifiable amount.
Redundancy Pay Period
The redundancy pay period depends on your length of employment. If you were employed:
- At least one year but less than two years, it is four weeks;
- At least two years but less than three years, it is six weeks;
- At least three years but less than four years, it is seven weeks;
- At least four years but less than five years, it is eight weeks;
- At least five years but less than six years, it is ten weeks;
- At least six years, but less than seven years, it is 11 weeks;
- At least seven years, but less than eight years, it is 13 weeks;
- At least eight years but less than nine years, it is 14 weeks;
- At least nine years but less than ten years, it is 16 weeks; and
- At least ten years, it is 12 weeks.
If you have worked for an employer for over a decade, your redundancy pay period is 12 weeks on account of any outstanding long service leave entitlements.
It is important to note that the amount of your redundancy pay might also depend on whether you were legally entitled to redundancy pay before the introduction of the NES. If you did not have that right, your period of continuous service commences on 1 January 2010.
It is also important to know that an employer can apply to the Fair Work Commission to reduce the amount of an employee’s redundancy pay. The Commission may grant permission if an employer finds other acceptable employment for the employee or cannot pay the full amount.
Am I Entitled to Redundancy Pay?
An employee is not always entitled to redundancy pay. Importantly, workers of small businesses do not have a right to redundancy pay. Small businesses are those businesses which have fewer than 15 employees.
However, there are specific guidelines as to who is and is not an employee for the purpose of working out entitlements to redundancy pay. These guidelines are freely accessible on the website for the Fair Work Ombudsman.
Also, the following employees have no right to redundancy pay:
- Those hired for less than 12 months;
- An employee hired for a specified task, a particular period or in a specific season;
- Anyone whose termination resulted from serious misconduct;
- An employee to whom a training agreement applies (other than an apprentice) or where employment is for a set time or limited to the duration of the training arrangement;
- An apprentice;
- Employees to whom apply an industry specific redundancy award applies (typically in a more modern award)
- An employee who falls under an enterprise agreement containing a redundancy agreement. However, this applies only if the redundancy scheme is industry specific and incorporated by reference into the agreement from a modern award currently in operation. The employee must fall under the redundancy scheme in the award.
Furthermore, an award might also specify other situations where an employer need not pay an employee severance pay.
Key Takeaway for Calculating Redundancy Pay
Redundancy pay is calculated by multiplying the employee’s base rate of remuneration by the redundancy pay period. However as outlined, there may be instances where this does not apply. If you require more information about redundancy pay, the Fair Work Ombudsman website is an excellent resource. However, if you need advice tailored to your particular situation, you will need to speak with a lawyer experienced in employment matters.
Contact LegalVision’s employment lawyers to assist you. Questions? Call us on 1300 544 755 or contact us with the form on this page.