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A redundancy occurs when an employee’s job is no longer required for the business. There are many reasons why a redundancy may occur. Some examples include: New technology fulfilling the job obligations or the business relocating or closing down. The result from any of these scenarios is that the employee, who no longer has any work to do, may have their employment terminated.
On the other hand, there are scenarios in which a redundancy should not occur. A redundancy is not considered genuine if it occurs because of an employee’s performance or conduct. It is important that no matter the scenario for a redundancy coming about, employers need to follow a fair procedure, including plenty of consultation and communication with the relevant employee. Failing to comply with these requirements makes it difficult to defend an unfair dismissal claim.
When an employee’s role becomes redundant, they are entitled to a payment in lieu of their service being no longer necessary. The most important facet that is considered in deciding on a redundancy payment is the employee’s length of service. However, the National Employment Standards (NES) do also set out a minimum redundancy or severance payment for employees based on various employment length of service. As an employer, you should be aware that these standards outline the fact that for an employee to be eligible for redundancy payment, they have to had been working with the business for at least one year. But it is also important that you check for exceptions in the relevant Award or agreement.
The way redundancy payments are calculated is based on what is outlined in the Fair Work Act 2009. It is worked out that given a certain number of years, or year, that an employee has been working, they will be entitled to a certain number of week’s pay. The weeks of pay is then calculated at the ordinary hours of work in which they would have worked for those weeks. The rates are outlined below.
|Period of continuous service.||Weeks of pay.|
|At least one year but under two years||Four|
|At least two years but under three years||Six|
|At least three years but under four years||Seven|
|At least four years but under five years||Eight|
|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|
You should also know that if an employee started work prior to the introduction of the NES on 1 January 2010, then their relevant period of service for redundancy payment calculation will begin from that date.
Leading up to an employee’s redundancy there are some specific guidelines which you need to stick to. This is to ensure that there is a positive relationship with the employee at their departure, as well as protection for your business. When ending an employment because of redundancy, you need to provide adequate notice or make payment in lieu, which is to be included in their full redundancy payment.
The minimum notice period in the NES is based on how many years your employee has worked for you (continuous service).
|Period of employment.||Minimum notice period.|
|Less than one year||One week|
|One – three years||Two weeks|
|Three – five years||Three weeks|
|Over five years||Four weeks|
You should take note at this point that if particular agreement or contract with an employee stipulates a longer notice period, then that is the notice period which needs to be applied. On top of this, it is important to know that if an employee becoming redundant is over 45 years old and has worked with your business for at least two years, they are entitled to an extra week’s notice.
While most employees who become redundant are entitled to redundancy, it is not the case with all employees. In some instances, redundancy payment is not necessary due to the nature of the employee’s employment arrangement. Some employment types which do not require a redundancy payment are outlined below:
If you are running a small business with less than 15 employees, you may also find that you are exempt from the typical redundancy payment laws. However, it is best to seek professional advice as there can be relatively significant business consequences for not handling redundancies properly. Employsure can advise and assist you with the correct redundancy payments in accordance with Fair Work legislation in Australia.
For peace of mind, please call our 24-hour Advice Line now on 1300 651 415