As an employer, there comes a time when your workers will think about the possibility of retiring. It’s important to know your rights and responsibilities when your employees near retirement to make sure you comply with any legal requirements.

Can I ask my employee to retire?

Under the Fair Work Act 2009 (Cth), you cannot dismiss your employees because they are getting too old. This behaviour amounts to discrimination and compulsory retirement. It includes when you have persuaded an employee to retire, or treated them in such a way that it forces them to retire. Your employee could then have an unfair dismissal claim against you.

If you feel that your employee just can’t perform their required duties anymore because of their age, you would need to go about their dismissal in the usual way that you would handle any employee with performance issues. Conducting a performance review for all of your employees on a regular basis is a good way to assess the capabilities of all of your employees and can help you determine who is still able to meet the expectations of the job. This way, age is not the issue at hand.

It may also be sensible to create a retirement policy. This could consist of a pre-retirement contract or a phased retirement plan with the employee that meets the requirements of any relevant award, enterprise agreement or employment contract. Your employee can then reduce the number of working days, do job-sharing, engage in mentoring a new worker and have other flexible working arrangements. The employee would need to enter these types of programs voluntarily and would need to make sure not to contravene any unfair dismissal laws or equal opportunity requirements.

What happens when they ask to retire?

So, your employee has asked to retire or begin a phased retirement plan – what happens next? As their employer, there are some financial considerations you will need to take into account to help them exit the workforce appropriately.

As with other employees that leave, you need to make any final PAYG withholding payments, send a payment summary to the employee, retain their TFN declaration and any necessary records. You will also need to make sure that you pay out their leave entitlements and superannuation contributions correctly.

An employee that is looking to retire because they have reached retirement age and will be eligible for a pension is not automatically eligible for any additional entitlements. Most awards or enterprise agreements do not provide for extra benefits on retirement. However, this will depend on the award or contract your employee is covered by. If your employee, having worked for your business for over ten years, is eligible for long service leave, they will be entitled to payment of the accrued leave, regardless of why they are leaving the workplace.


An employee retiring is a big step for both your business and their future. Knowing your requirements as an employer when the issue first arises is essential to ensure a smooth transition and amicable exit from your employment.

LegalVision can provide you with advice on how best to deal with a near retiring employee. Feel free to call us on 1300 544 755.

Bianca Reynolds
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