A redundancy occurs when a business no longer requires anyone to do the employee’s job, or because the employer is insolvent or bankrupt. This could be due to several factors such as:
- Downsizing.
- Restructuring.
- Technological advancements.
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.
A genuine redundancy means that it is not reasonable for the employee to be redeployed within the enterprise or associated entity.
The National Employment Standards (NES) usually set out a minimum redundancy or severance payment for permanent employees based on their length of service. 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 (e.g. the payment of annual leave). The amount of redundancy pay, notice, and entitlements owing may vary depending on the relevant award or registered agreement and employers must 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 by the requirements of the contract, Enterprise Agreement, Award, or the National Employment Standards.
Redundancy pay
Not all employees get redundancy pay if they are made redundant. Usually, for a permanent employee to be eligible for a redundancy payment, they must have been working with the business for at least one year. Also, generally, 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.
It is essential to review any industry specific redundancy schemes. Some employees who may not be eligible for redundancy schemes include:
- Casual employees.
- Employees employed for a specific period, task, or season duration.
- Employees whose employment is terminated due to a serious misconduct.
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 owed.
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 stipulates 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 instead of notice (by 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.
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 redundancy. But if the employee loses their job because they refused to accept a lower-paid role, they must receive a redundancy payment.
Looking for a new job during the notice period
Most modern awards include a job search entitlement that provides employees with 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 (before accepting such a request).
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.
For expert advice on employee redundancy and your obligations as an employer, you can contact Peninsula.
This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.