4.8

Google Reviews

Need Help? Contact An Australian Business Lawyer Today 1300 003 077
Search
Close this search box.

When Does a Company Have to Pay Redundancy?

Reading time: 10 mins

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.

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.

When is there redundancy

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.

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.

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 Service Minimum Notice Period
1 year or less 1 week
More than 1 year -3 years 2 weeks
More than 3 years – 5 years 2 weeks
More than 5 years 4 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 service Redundancy pay
At least 1 year but less than 2 years 4 weeks
At least 2 years but less than 3 years 6 weeks
At least 3 years but less than 4 years 7 weeks
At least 4 years but less than 5 years 8 weeks
At least 5 years but less than 6 years 10 weeks
At least 6 years but less than 7 years 11 weeks
At least 7 years but less than 8 years 13 weeks
At least 8 years but less than 9 years 14 weeks
At least 9 years but less than 10 years 16 weeks
At least 10 years 12 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.

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.

case laws on redundancy

When to pay redundancy payments: Case law examples

Genuine Redundancy

Voluntary Redundancy

Entitlement to Redundancy Pay

Redundancy Payment

Alternative Employment/ Redeployment

Key takeaways

  • Redundancy arises when an employee’s role is no longer required due to factors like workforce restructuring or business closure.
  • Eligibility for redundancy pay includes full-time or part-time employees with at least one year of service in businesses with a minimum of 15 employees.
  • Small businesses, generally with fewer than 15 employees, may not be obligated to pay redundancy.
  • Employers should assess the necessity of a role for their business and ensure the redundancy is genuine to prevent unfair dismissal claims.
  • Communication with affected employees is crucial, exploring alternatives like redeployment, job sharing, or reduced overtime.
  • Compliance with notice periods and redundancy pay entitlements is essential.
  • Redundancy pay is based on an employee’s continuous service and is calculated at their base pay rate for ordinary hours worked.
  • The Fair Work Act outlines a schedule for minimum redundancy pay based on years of service.
  • Employers can apply for a redundancy pay waiver under the Fair Work Act by finding alternative employment for the employee or demonstrating an inability to pay.
  • Offering voluntary redundancy to employees can be another strategy to avoid or reduce redundancy payments.

Frequently Asked Questions

  • Redundancy occurs when an employee’s role is no longer needed due to factors like restructuring or business closure.
  • Applicable when a full-time or part-time employee has worked for at least one year in a business with 15 or more employees.

No, small businesses with fewer than 15 employees may not be obligated to pay redundancy.

  • proper dismissal processes have been followed.
  • Seeking legal advice is recommended to confirm genuineness.
  • Assess the necessity of the role for the business.
  • Ensure the redundancy is genuine.
  • Communicate changes to employees and explore alternatives.
  • Determine notice periods and redundancy requirements.
  • Provide a written notice of termination.
  • Redundancy pay is based on an employee’s continuous service and is calculated at their base pay rate for ordinary hours worked.
  • The Fair Work Act provides a schedule for minimum redundancy pay based on years of service.
  • Employers can apply for a redundancy pay waiver by finding alternative employment for the employee or demonstrating an inability to pay.
  • Offering voluntary redundancy to employees can also reduce or eliminate payments.

About the Author

Farrah Motley
Director of Prosper Law. Farrah founded Prosper online law firm in 2021. She wanted to create a better way of doing legal work and a better experience for customers of legal services.

Contact an Australian Business Lawyer Today.

Contact us for a free consultation
Contact Us For A Free Legal Consultation
About Prosper Law

We provide legal advice to business and individuals across Australia, no matter which State or Territory you are located. Our easy-to-access, online legal services mean that you can talk to our lawyers wherever you are, at a time that suits you.

4.5

Google Reviews

Get Your Free Guide Now
Need Legal Assistance?

Don’t hesitate – reach out for your free legal assistance today. Your peace of mind is just a click or call away!

Check Out Our Latest Blog Posts

Carlynn is a Senior Paralegal at Prosper Law and is finishing a JD in Law in the Philippines
Employment

The Right to Disconnect from Work

The right to disconnect is now part of Australian law. The right to disconnect will start in 2024 for large employers and in 2025 for small employers. There are some

Online Legal Advice
Employment

Restraint of Trade on Managerial Positions

Employers set various employee restrictions to avoid legitimate impediments and losses and to protect their businesses and commercial assets. Restrictions should follow the law and consider both the employer’s interests