The Ultimate Employee Redundancy Guide

The Ultimate Employee Redundancy Guide

Table of content

  1. What is redundancy?
  2. When does redundancy happen?
  3. What’s a genuine redundancy?
  4. How to calculate redundancy payment and entitlements?
  5. Redundancy case study
  6. How can Workstem assist you?

What is redundancy?

In Australia, redundancy refers to a situation where an employer terminates an employee’s employment because their position is no longer required or the business is downsising, for example, insolvent or bankrupt. It is a form of job loss that is not related to the individual employee’s performance or conduct.

Redundancy may occur due to various reasons. When an employee is made redundant, they are entitled to certain rights and entitlements, including redundancy pay, notice period, and other benefits as per the applicable employment laws and any relevant employment agreements or awards.

When does redundancy happen?

Redundancy can occur under various circumstances. It happens when an employer either:

  • doesn’t need an employee’s job to be done by anyone, or
  • becomes insolvent or bankrupt.

Redundancy can happen when the business:

  • introduces new technology (for example, the job can be done by a machine)
  • slows down due to lower sales or production
  • closes down
  • relocates interstate or overseas
  • restructures or reorganises because a merger or takeover happens

Redundancy must be a genuine reason and not related to an individual employee’s performance or conduct. The specific circumstances of redundancy can vary based on factors such as industry, company size, and economic conditions.

Reference: Fair Work

What’s a genuine redundancy?

A genuine redundancy is when:

  • the person’s job doesn’t need to be done by anyone
  • the employer followed any consultation requirements in the award, enterprise agreement or other registered agreement.

When an employee’s dismissal is a genuine redundancy the employee isn’t able to make an unfair dismissal claim.

A dismissal is not a genuine redundancy if the employer:

  • still needs the employee’s job to be done by someone (for example, hires someone else to do the job)
  • has not followed relevant requirements to consult with the employees about the redundancy under an award or registered agreement or
  • could have reasonably, in the circumstances, given the employee another job within the employer’s business or an associated entity.

Reference: Fair Work

How to calculate redundancy payment and entitlements?

In Australia, the calculation of redundancy payments and entitlements is based on various factors, including the employee’s length of service, age, and the applicable modern award, enterprise agreement, or employment contract.

In terms of entitlements, when an employee is made redundant, they may be eligible for a redundancy payment, also known as a severance package. However, there are certain exceptions to consider.

Employees who don’t get redundancy pay

Under the National Employment Standards (NES), redundancy pay doesn’t need to be paid in some circumstances. The following employees don’t get redundancy pay:

  • employees whose period of continuous service with the employer is less than 12 months
  • employees employed for: a stated period of time; an identified task or project; a particular season
  • employees terminated because of serious misconduct
  • casual employees
  • trainees engaged only for the length of the training agreement
  • apprentices

Notice period

To terminate an employee’s employment, an employer has to give them written notice of their last day of employment (some exceptions apply).

An employer can give notice to the employee by:

  • delivering it personally
  • leaving it at the employee’s last known address
  • sending it by pre-paid post to the employee’s last known address, or
  • if the employee agrees, sending it electronically by email or text message

The amount of notice period is calculated as below:

Period of continuous service

Minimum notice period (by week)

1 year or less

1

More than 1 year – 3 years

2

More than 3 years – 5 years

3

More than 5 years

4

Redundancy payment

Redundancy is paid at the employee’s base rate of pay for the ordinary hours they would otherwise have worked over that period.

An employee’s base rate of pay (other than a pieceworker) is the pay rate they receive for working their ordinary hours, but does not include the following:

  • incentive-based payment and bonuses
  • loadings
  • monetary allowances
  • overtime or penalty rates
  • any other separately identifiable amounts.

Period of continuous service

Weeks of pay
At least one year but under two years

4

At least two years but under three years

6

At least three years but under four years

7

At least four years but under five years

8

At least five years but under six years

10
At least six years but under seven years

11

At least seven years but under eight years

13

At least eight years but under nine years

14

At least nine years but under 10 years 16
At least 10 years

12*

* There is a reduction in redundancy pay from 16 weeks to 12 weeks for employees with at least 10 years continuous service. This is consistent with the 2004 Redundancy Case decision made by the Australian Industrial Relations Commission.

Redundancy case study

The formula for calculating redundancy payment is:

Base Rate of Pay x Redundancy Pay Period = Redundancy Pay

Example: Employee A earns AU$96,000 and has worked seven continuous years. His redundancy pay period is 13 weeks, meaning he is entitled to a payment of 13 weeks of his yearly salary.

His redundancy payment would be: 13/52 x AU$96,000 = AU$24,000

How can Workstem assist you?

Workstem is a one-stop payroll & HR platform that simplifies the redundancy process. We facilitate clear employee information in one master file and provide a streamlined and compliant approach to handling Employment Termination Payments (ETP), ensuring compliance with legal requirements, managing notice periods, and helping organise and store relevant documents.

Take control of your redundancy payment and more payroll issues today and experience the convenience of Workstem now!

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