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For any company, learning when you have to pay redundancy is important. Redundancy is payable if a genuine redundancy has taken place and the company is not a small business.

In this article, we will discuss relevant matters regarding when redundancy must be paid.

You should also seek the help of an employment lawyer to assist you through the process.

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Author: Farrah Motley, Director of Prosper Law and an employment lawyer.

when do you have to pay redundancy

What is redundancy?

Redundancy occurs when a part-time or full-time employee’s role is no longer required by the employer due to circumstances such as workforce restructuring and closure of business because of bankruptcy or insolvency.

Employees may be entitled to redundancy pay if they:

  • work full-time or part-time
  • are employed by a business that has at least 15 employees
  • are employed for at least 1 year with that employer

Redundancy can be voluntary or involuntary. Involuntary redundancy occurs when the redundancy is mandatory or compulsory and there is no option given to the employee.

Whereas it is voluntary when employees agree to make their job redundant. The employer usually provides alternative options and financial incentives to the employees.

Do all businesses have to pay redundancy?

It is understood that not all businesses have to pay redundancy. When an employee works for a small business employer, generally, such business is not obliged to pay redundancy.

According to the Fair Work Ombudsman’s website, the following factors need to be considered in determining whether the employer has fewer than 15 employees. These factors are:

  • all employees employed by the employer at that time are to be counted
  • a casual employee is not to be counted unless, at that time, they have been employed on a regular and systematic basis
  • associated entities are taken to be one entity
  • the employee being terminated, and any other employees being terminated at that time are counted.
when to pay redundancy

What are the steps a business must take to make someone redundant?

It should be remembered that what is made redundant is the employee’s role or position and not the employee per se.

Redundancy does not occur because of employees’ conduct or performance but is based on the condition of their job, role, or position, and the business.

In order to make an employee’s role redundant, the following steps could serve as your guide:

Decide whether you no longer need the job for your business

In order to make someone’s role redundant, as an employer, you should determine whether the position is no longer necessary for the business. For instance, in cases of workforce restructuring, reorganisation, or technological advancement.

Make sure that the redundancy is a genuine redundancy

This is important to confirm in order to protect your business since the employee will not be able to file for unfair dismissal if the dismissal was a case of genuine redundancy.

A genuine redundancy is when the employee’s role or position is no longer necessary for the employer’s business, and the job does not need to be done by anyone.

Also, it is genuine redundancy when the employer has followed the process for the dismissal. This includes complying with the consultation requirements in the award, enterprise agreement, or other registered agreement.

To be sure, it is better to seek legal advice to determine whether it is genuine redundancy or not.

when to pay redundancy

Inform the employees who will be affected by the changes

As an employer, communication with the employees is significant. They must be informed of the changes within the business which may affect their working arrangements.

Employees shall be provided with the opportunity to raise questions and suggestions regarding the changes.

Most importantly, you shall consider all alternatives and options regarding redundancy. For example, redeployment, job sharing, and reduced overtime.

Determine the notice periods and redundancy requirements before paying redundancy

You must find out the minimum notice of termination and redundancy pay entitlements for each affected employee according to the National Employment Standards (NES).

The table below outlines the applicable minimum notice period as established by NES:

Period of Continuous ServiceMinimum Notice Period
1 year or less1 week
More than 1 year -3 years2 weeks
More than 3 years – 5 years2 weeks
More than 5 years4 weeks

If a contract, award, and enterprise agreement state a more generous provision for redundancy entitlements than that of the National Employment Standards, the more generous provisions should apply.

In cases where 15 or more employees’ positions become redundant, then written notification of the proposed dismissals should be submitted to Services Australia.

Provide a Letter of Termination to the affected employees

The Letter of Termination shall serve as a written notice to the affected employee.

The letter shall indicate the reason for the employee’s termination, the notice period, employee’s last day of work, redundancy pay entitlements, and other applicable entitlements.

How much does a company have to pay for redundancy?

When an employee’s job is made redundant, they may be entitled to redundancy pay.

This extra pay will be determined by how long they have been with the employer and the amount is paid at the employee’s base pay rate for ordinary hours worked.

Employee’s base pay rate must not include the following:

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

Refer to the table below for the minimum redundancy pay that an employee is entitled to receive, as set out by the Fair Work Act:

Period of continuous serviceRedundancy pay
At least 1 year but less than 2 years4 weeks
At least 2 years but less than 3 years6 weeks
At least 3 years but less than 4 years7 weeks
At least 4 years but less than 5 years8 weeks
At least 5 years but less than 6 years10 weeks
At least 6 years but less than 7 years11 weeks
At least 7 years but less than 8 years13 weeks
At least 8 years but less than 9 years14 weeks
At least 9 years but less than 10 years16 weeks
At least 10 years12 weeks

Different redundancy provisions may apply instead of those listed above in an award or agreement and these may provide more redundancy pay. It is recommended to check the employment contract, award, or agreement if these include redundancy clauses.

How can a company avoid having to pay redundancy?

We previously discussed that not all businesses are required to pay redundancy. However, paying redundancy can be prevented, reduced, or waived completely. This can be possible by applying for a redundancy pay waiver under the Fair Work Act.

Under the Fair Work Act, employers who are required to pay redundancy and wanted to reduce the amount to be paid should either:

  1. have found alternative employment for the employee; or
  2. are not capable of paying the redundancy pay.

Employers can be exempted from making redundancy payments if they were able to redeploy or find their employees a suitable alternative employment.

when do you have to pay redundancy

It is suitable when the employee’s competence, skills, and experience meet the nature and qualifications required to perform the job. And the location of the job in relation to the employee’s residence should also be considered, as well as the remuneration and entitlements to be offered.

Another way to avoid redundancy payments is to offer voluntary redundancy to your employees, which is discussed above.

When to pay redundancy payments: Case law examples

Genuine Redundancy

Voluntary Redundancy

Entitlement to Redundancy Pay

Redundancy Payment

Alternative Employment/ Redeployment

How can Prosper Law help?

Prosper Law is Australia’s online law firm. We provide legal advice to businesses and individuals across Australia. Our areas of legal practice include contracts, eCommerce, publishing, legal counsel and employment law.

If you need to talk to an employment lawyer, get in touch today.

Contact the team at Prosper Law today to discuss how we can provide you with employment legal advice for a fixed fee or at affordable hourly rates.

Farrah Motley | Director

PROSPER LAW – Australia’s Online Law Firm

M: 0422 721 121

E: farrah@prosperlaw.com.au

W: www.prosperlaw.com.au

A: Suite No. 99, Level 54, 111 Eagle Street, Brisbane, Queensland Australia 4000

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