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There are important considerations to bear in mind when entertaining an employment redundancy. An important one is your obligation to make redundancy payments. The National Employment Standards (NES) entitle most employees to redundancy pay under certain conditions. In addition to the NES, employment contracts, modern awards and enterprise agreements also dictate redundancy pay obligations. To help you manage redundancy pay, this article outlines what is payable and the exceptions to the requirement to pay.
Who is Eligible?
You must first determine if any employee is eligible for redundancy pay. Under the Fair Work Act, employees are generally entitled to redundancy pay if:
- they have worked with you for more than 12 months; and
- you intend to make them redundant.
The law does not count the following when calculating the period of employment:
- unauthorised absences;
- unpaid leave; or
- unpaid authorised absence.
Some employees are generally not entitled to redundancy payments. This includes:
- casual employees;
- employees who are employed by a small business employer (i.e. a business with fewer than 15 employees);
- an employee who you employed for a specified period or for the duration of a specified season; and
- an employee whose employment you terminated due to serious misconduct.
Is Termination a Redundancy?
Next, you must determine if the termination is a form of redundancy. A genuine redundancy occurs when you:
- no longer need someone to perform a role in your business;
- have complied with the consultation obligations in the modern award or enterprise agreement that covers your employee; and
- have considered redeploying the affected employee within your business.
However, things become complicated if:
- you intend to change the nature of an employee’s position or location of the work; and
- the employee declines the new conditions.
The law has specific ways to determine if such conditions satisfy the definition of a termination via redundancy.
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How Much is Payable?
Your employees’ length of service largely dictates the value of the redundancy payment. For example, the table below outlines the rates of redundancy pay under the NES. However, you should note that a modern award, enterprise agreement or employment contract can set a higher redundancy pay than what is prescribed below.
|
Period of Continuous Services |
Redundancy Pay Period |
|
At least one year but less than two years |
4 weeks |
|
At least two years but less than three years |
6 weeks |
|
At least three years but less than four years |
7 weeks |
|
At least four years but less than five years |
8 weeks |
|
At least five years but less than six years |
10 weeks |
|
At least six years but less than seven years |
11 weeks |
|
At least seven years but less than eight years |
13 weeks |
|
At least eight years but less than nine years |
14 weeks |
|
At least nine years but less than ten years |
16 weeks |
|
At least 10 years |
12 weeks. Although the redundancy pay period declines to 12 weeks after ten years of service, this is because these employees are also entitled to long service leave. |
To calculate your employee’s redundancy payment, you must multiply their base rate of pay by their redundancy period. In other words:
BASE RATE OF PAY x REDUNDANCY PAY PERIOD = REDUNDANCY PAY.
If you are unsure how to calculate redundancy payment, you should seek professional advice.
Do Any Exemptions Apply?
There are statutory exceptions to the requirement to pay which are generally mirrored in a relevant award or enterprise agreement. You can apply to the Fair Work Commission to vary your obligation to make a redundancy payment where you:
- obtains other acceptable employment for the employee; or
- cannot pay the amount.
Importantly, you cannot vary or reduce an employee’s redundancy entitlements unless the Fair Work Commission approves it. Ultimately, there is no guarantee that the Commission will vary your obligations since its determination depends on the circumstances of each individual case.
Additionally, if you operate a small business with fifteen or fewer employees at the time of the redundancy, you do not need to make redundancy payments.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Key Takeaways
You generally must make redundancy payments to employees with 12 months or more continuous service. The value of the redundancy payment depends on how long your employee has worked for you, among other factors. That said, there are exceptions to the requirement to make redundancy payments where you:
- apply to the Fair Work Commission to vary your obligation; or
- are a small business with fifteen or fewer employees.
If you are making positions redundant, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A genuine redundancy occurs when you no longer need someone to perform a role in your business, have complied with the consultation obligations in the modern award or enterprise agreement that covers your employee, and have considered redeploying your employee within your business.
Generally, you must make redundancy payments for any permanent employee who has completed continuous service for your business for more than 12 months. Your obligation to make redundancy payments can be found in the relevant award, enterprise agreement and/or employment contract.
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