Redundancy Entitlements
A redundancy occurs when a business no longer requires anyone to do the employee’s job, or because the employer is insolvent or bankrupt.
BrightHR has a Redundancy Tool to help you navigate the Redundancy process. It helps you formulate a plan and better understand what steps are required. It provides resources and template documents, and even has a handy glossary to clarify relevant terminology.
When an employee’s job is made redundant, they may be entitled to a redundancy payment in addition to other entitlements required, such as annual leave entitlements.
The National Employment Standards (NES) usually set out a minimum redundancy or severance payment for permanent employees based on their length of service, though some awards or registered agreements may have Industry Specific Redundancy Schemes that set out different entitlements.
In addition to the specific redundancy payment, more commonly known as ‘severance pay’, employees are also entitled to notice of termination and other statutory entitlements (eg. payment of annual leave). The amount of redundancy pay, notice and entitlements owing may vary depending on the relevant award or registered agreement and it is important that employers pay the full amount of redundancy and associated entitlements to minimise any risk of a claim against the business.
Any outstanding entitlements, such as unused annual leave, must be paid out in accordance with the requirements of the contract, Enterprise Agreement, Award or the National Employment Standards.
You can manage and keep track of employee rosters, timesheets, leave and absenteeism to enable you to pay the employee their entitlements with BrightHR. You can generate and print reports, and then store wage and time records and related documents securely in the cloud to comply with your record-keeping requirements.
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Redundancy Pay
Not all employees get redundancy pay if they are made redundant. Usually, for a permanent employee to be eligible for redundancy payment, they have to had been working with the business for at least one year. Also, as a general rule, small businesses, defined as those engaging fewer than 15 employees, do not have to pay redundancy pay. However, it ultimately depends on the terms of the industrial instrument which covers the business. Some industry awards such as the Building and Construction General On-Site Award 2020 and the Timber Industry Award 2020 have industry specific redundancy pay schemes which apply to small businesses which would otherwise be exempt from having to pay redundancy pay according to the National Employment Standards.
Notice Periods
When an employer is making a position redundant, they are still required to provide written notification of the day the employment will end to the impacted employee. An employer is required to give the employee a certain amount of notice, usually depending on how long the employee has been employed in the business. An employer can require the employee to work out the required notice period or make payment to the employee of the required notice in addition to any redundancy payment that would otherwise be owing.
Notice is paid at the employee’s full pay rate as if they had worked the minimum notice period, so the notice can include incentive-based payments and bonuses, loadings, allowances and overtime or penalty rates.
The minimum notice period in the NES is based on how many years your permanent employee has worked in the business continuously (continuous service), though an agreement or employment contract pay stipulate a longer notice period which will need to be applied over the period in the NES. Please note that awards and enterprise agreements may provide for longer periods of notice.
On top of this, it is important to know that if the employee being made redundant is over 45 years old and has worked within your business for at least two years, they are generally entitled to an extra week’s notice, depending on the applicable award or registered agreement. An employer does not have to give a notice of termination or payment in lieu of notice (in accordance with the National Employment Standards) if the employee is:
engaged on a casual basis
employed on a fixed-term contract (and the contract is terminated at the end of the specified period or task)
fired due to serious misconduct
a trainee employed for the length of the training period only (other than an apprentice)
a daily hire worker in the building, construction, meat or plumbing industry
a weekly hire employee in connection to the meat industry and the termination is based on seasonal factors.
Looking for a New Job During the Notice Period
Most modern awards include a job search entitlement that provides employees at least one paid day off per week during the notice period to find a new job. This allows employees to search for further employment and attend interviews without having to sacrifice pay.
If the employee requires more than one day for this purpose, they may request to take annual leave. In those circumstances, an employer may request evidence of the employee attending interviews (prior to accepting such a request).
Transfer to Lower Paid Duties
Not all cases of redundancy result in the end of employment. Under redundancy provisions in most awards, if an employee is transferred to a lower paid position due to a redundancy, they are entitled to notice of the transfer as if their employment is being terminated, or if no notice is given, to be paid the difference between what they would have earned in their old role for the hours they ordinarily would have worked, (including any allowances, shift rates and penalty rates they would have been entitled to) and what they are earning for ordinary hours worked in their new role.
An employee may not receive a redundancy entitlement if they accept a lower paid job that is offered due to a redundancy. But if the employee loses their job because they refused to accept a lower paid role, they must receive a redundancy payment.
Reducing Redundancy Pay
In certain circumstances, an employer can apply to the Fair Work Commission to vary or reduce the amount of redundancy pay. In some cases, this may result in the total payment being varied to nil. An employer is entitled to make an application to the Fair Work Commission to vary redundancy pay in circumstances where:
the employer was able to find the employee other acceptable employment
the employer cannot afford to pay the full amount of redundancy pay
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Frequently Asked Questions
When Does Redundancy Pay Not Have To Be Paid?
Some employees don’t get redundancy pay when their job is made redundant. This includes:
- employees whose period of continuous service with the employer is less than 12 months
- employees employed for a fixed period of time or a specific task or project
- seasonal workers
- employees fired because of serious misconduct
- casual employees
- trainees engaged only for the length of the training arrangement
- apprentices
- employees of a small business, unless the applicable industrial instrument says otherwise.
How Is Redundancy Pay Calculated In Australia?
Redundancy pay is calculated in accordance with the relevant terms contained within the National Employment Standards (NES), or applicable Modern Award or Enterprise Agreement.
Ordinarily, the amount of redundancy pay owed depends on the employee’s ‘continuous service’.
Please seek advice if your employee commenced prior to 1 January 2010.
Can I Reduce The Redundancy Pay?
No, only the Fair Work Commission can decide to reduce the amount of redundancy pay based on the circumstances, but an employer can apply to the Fair Work Commission to have the amount of redundancy they have to pay reduced if:
- the employer finds other acceptable employment for the employee, or
- the employer can’t afford the full redundancy amount.
Do Employers Have To Give Notice Of Redundancy?
Yes. An employer must provide an employee with written notice of the day of termination when ending their employment and must give the minimum period of notice required under the NES, or the contract or applicable industrial instrument, or pay the employee instead of giving notice. This is paid at the employee’s full pay rate as if they had worked the minimum notice period.
What Are Employees Entitled To When They Are Made Redundant?
Generally, depending on the employee’s employment type, their length of service, the size of the business, and the applicable award, an employee may be entitled to notice, redundancy pay, any untaken annual leave and possibly long service leave, depending on the circumstances.
Can An Employee Look For A New Job While On Notice?
Yes. Most awards have provision for employees to have paid days off to look for another job during their notice period, though they be required to provide evidence that they are attending a job interview on those days.
