When an employee’s job is made redundant they may be owed a redundancy payment. 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 and banked RDO). The amount of redundancy pay, notice and entitlements owing vary across industry awards and it is important that employers pay the full amount of redundancy and associated entitlements – or else risk facing a dispute and paying hefty penalties.
Under Australian redundancy laws, each industry award clearly outlines any redundancy pay which may be owed to affected employees.
As a general rule, small businesses, defined as those engaging fewer than 15 employees, do not have to pay notice. However, this 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 2010 and the Timber Industry Award 2010 have industry specific pay schemes which apply to small businesses which would otherwise be exempt from having to pay redundancy pay according to the National Employment Standards.
Ordinarily, the amount of redundancy pay owed depends on the employee’s ‘continuous service’. For example, according to the National Employment Standards, an employee with at least one year of continuous service (but less than two years) will receive four weeks’ redundancy pay. The amount of redundancy pay owed to an employee can be found in the National Employment Standards, the Modern Award or the relevant enterprise agreement.
Most redundancy payments are equal to the employee’s base rate of pay and normally do not include incentive-based payments and bonuses, monetary allowances, penalty rates, overtime, loadings, and other separately identifiable amounts.
If an employee has unused annual leave or long service leave, these outstanding entitlements must be paid out in accordance with the requirements of the contract, Enterprise Agreement, Award and/or the National Employment Standards.
When an employer is making a positon redundant, they are still required to provide notice of termination to the impacted employee. 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.
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:
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).
Not all cases of redundancy result in the end of employment. Under redundancy rules, if an employee is transferred to a lower paid position due to a redundancy, they are entitled to:
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.
In certain circumstances, an employer may be able 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 whereby:
For advice on redundancy rules in the workplace, fill out the online form to request a free consultation with a specialist on redundancy rights.