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