As your business evolves, you may need to restructure, implement more automated processes or take other actions that require you to reduce your staff. As such, it is common to make employees redundant during these times. When you make an employee redundant, you must understand your rights and obligations as an employer. This article will discuss who is eligible for redundancy pay and what businesses the law exempts from making redundancy payments.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
What is Redundancy?
A redundancy occurs when you no longer require an employee’s job to be done by anyone. Therefore, redundancy is common when companies:
- relocate interstate or overseas;
- restructure or reorganise following a merger or takeover;
- faces cash flow issues; or
- introduces new technology that can replace an employee.
To avoid any potentially legitimate unfair dismissal claims, the dismissal must meet the definition of a ‘genuine redundancy’. A redundancy is not ‘genuine’ if:
- the employee’s role is still required within the business;
- you have not met your consultation requirements under an applicable modern award or enterprise agreement, or
- you could have reasonably offered the employee another job within the business or an associated entity.
Employees cannot claim unfair dismissal if you conduct a genuine redundancy. Hence, if you fail to implement a genuine redundancy and the former employee makes an unfair dismissal application, you will need to prove that you dismissed the employee:
- based on a valid reason; and
- according to a procedurally fair process.
What Are Redundancy Payments?
Redundancy pay is the payment you make to an employee once you make them redundant. Redundancy pay differs depending on your employee’s continuous period of service with your business.
The Fair Work Act sets out the minimum amount of redundancy pay that employers must pay each employee according to the following schedule:
| Employee’s period of continuous service with the employer on termination | Redundancy pay period |
| At least 1 year but less than 2 years | 4 weeks |
| At least 2 years but less than 3 years | 6 weeks |
| At least 3 years but less than 4 years | 7 weeks |
| At least 4 years but less than 5 years | 8 weeks |
| At least 5 years but less than 6 years | 10 weeks |
| At least 6 years but less than 7 years | 11 weeks |
| At least 7 years but less than 8 years | 13 weeks |
| At least 8 years but less than 9 years | 14 weeks |
| At least 9 years but less than 10 years | 16 weeks |
| At least 10 years | 12 weeks |
You must make redundancy payments based on your employee’s ordinary work hours. Additionally, you must pay any outstanding entitlements such as annual leave or long service to the employee.
Continue reading this article below the formWho is Not Entitled to Redundancy Payments?
However, some employees are not entitled to redundancy payments. Employees who do not meet the eligibility criteria for redundancy pay include:
- employees whose period of continuous service is less than 12 months;
- employees employed under a maximum or fixed term agreement, where the employment ends on the expiry date;
- employees who are terminated due to serious misconduct or underperformance;
- casual employees;
- trainees engaged only for the length of the training agreement; or
- apprentices.
What Businesses Do Not Have To Make Redundancy Payments?
Most small businesses are not required to make redundancy payments when making employees redundant. A small business is a company with less than 15 employees.
In saying that, some modern awards require small businesses to make redundancy payments in specific circumstances. Therefore, the best way to be sure whether your small business needs to make redundancy payments is to review the applicable modern award for your employees.
Key Takeaways
Most businesses need to make redundancy payments to eligible employees. If you have employed staff members for more than 12 months, they are most likely entitled to a redundancy payment. It is essential to look at the schedule within the Fair Work Act to know how much to pay them based on their years of continuous service. Notably, while small businesses do not have to make redundancy payments, some awards require payment.
If you need help navigating redundancy in your business, 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 require someone to perform the role, you have complied with your employer consultation obligations, and redeploying the employee within the business is unreasonable.
Most small businesses do not need to make redundancy payments. However, this depends on the modern award that covers the employee. For example, the Manufacturing and Associated Industries and Occupations Award sometimes requires small businesses to make redundancy payments.
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