Redundancy: Pay, Entitlements and Employer Obligations

Author: Ian Aldridge, Progressive Legal

If you’re a business owner reorganising your company, which might lead to some jobs no longer being needed, you might have to guide certain employees through a redundancy process. Though it’s unfortunate and often tough for an owner or manager, this essential process is detailed and requires specific steps to prevent conflicts, unfair dismissal claims, or negative reactions. It must be handled with care to protect your brand.

This article delves into what constitutes a true redundancy, the steps for making an employee’s role redundant, redundancy pay rights, and roles not eligible for redundancy pay. 

Redundancy and The National Employment Scheme (NES)

The National Employment Scheme found under part 2 – 2 of the Fair Work Act, 2009 establishes what redundancy pay an employee, except those listed below, is entitled to receive upon termination of their employment, unless an award or enterprise agreement applies to the employee’s position.

What is a genuine redundancy?

One of the crucial aspects that often gets overlooked when making a position redundant is making sure there is an actual genuine redundancy taking place. That may sound simple but its fundamental.

A genuine redundancy occurs when an employee’s job position is no longer required because of changes in the requirements of the business and the employer has complied with any obligation imposed by an applicable modern award or enterprise agreement to consult about the redundancy.

Termination of employment is not a genuine redundancy if the employer does not follow the relevant requirements to consult under the applicable award or enterprise agreement or if the position in question is still required and the employer simply hires someone else to work in the same or similar position.

The termination is also not a genuine redundancy if it would have been reasonable in the circumstances to redeploy the person within the employer’s business or the business of an associated entity of the employer.

If your business does require the position to be filled, but it’s simply a case of you don’t think the employee is a good fit – that’s not a genuine redundancy. It must be clearly established that the role itself is no longer required by the business for a genuine redundancy to be established.

What is voluntary redundancy?

Consulting requirements

The consultation process establishes the actions an employer is required to take when there are changes to the business that are likely to result in redundancies.

Once a decision has been made to make an employee’s position redundant, the employer must commence the consultation process as soon as possible.

All award and enterprise agreements have some form of consultation process in relation to redundancies. Even if no award or enterprise agreement applies, it is still best practice to consult a lawyer in order to reduce the risk of an unfair dismissal claim.

Generally, consultation requirements include:

• Notifying employees who may be affected by proposed changes to the business;
• Providing employees with information about the above changes and what the effect of the changes is expected to be;
• Discussing steps taken to avoid and minimise negative effects on the employees; and
• Taking employees comments or suggestions about the changes into account.

Redundancy notice

If you decide to proceed with making an employee’s position redundant, you must provide the employee with written notice of termination indicating the last day of the employee’s employment.

You can either elect to have the employee work throughout the notice period or, depending on the terms of your contract, pay the employee for the length of the notice period. This would be paid at the employee’s pay rate, including loadings, overtime and penalty rates.

The relevant employment agreement should state the amount of notice you are required to provide, but at the very least, it must be no less than the following minimum notice period required under the National Employment Scheme. Keep in mind that employees over 45 years old who have been employed for two years must be given an extra week of notice.

Who can receive redundancy pay entitlements?

If your employee’s position is made redundant, unless they fall in one of the categories of employees listed below, the employee will be entitled to receive redundancy pay.

The amount of redundancy pay will be determined by the amount of continuous service the employee has worked for the business. The amount paid will be calculated at the employee’s base rate for the ordinary hours worked.

An employee’s base rate doesn’t include bonuses, overtime or penalty rates and monetary allowances.

Awards and enterprise agreements

If the employee’s position is covered by an award or enterprise agreement, you will need to review the redundancy pay entitlements noted in the agreement and comply with those requirements. To determine if your employee is covered by an award or enterprise agreement you can conduct a search on the Fair Work Commission website.

Calculating redundancy pay

If the position is not covered by a registered agreement, then the following applies, regarding calculating redundancy pay.

There are circumstances where you may be able to reduce the amount of redundancy pay owed to the employee. You can apply to the Fair Work Commission to reduce the amount if you find the employee other employment or if the business can’t afford to pay the full amount of redundancy pay. Evidence of this would need to be provided. The application forms are found on the Fair Work Commission’s website.

Who is not entitled to receive a redundancy payment?

Certain employees are not entitled to receive redundancy payments when their job is made redundant.

These employees include:

• employees who have worked for a continuous period of less than 12 months;
• employees of a small business with less than 15 employees;
• casual employees;
• apprentices;
• trainees engaged only for the length of a training agreement;
• employees terminated for serious misconduct; and
• employees employed for a specified period of time, for a specified task, or for the duration of a specified season.

Are there small business exemptions to redundancy laws?

If your business is classed as a small business, then you are not obligated to pay redundancy pay.

A small business is one that has less than 15 employees.

In accordance with section 23 of the Fair Work Act, 2009, when calculating the number of employees a business has, you should include the following:

• full-time and part-time employees;
• the employee to be terminated;
• any other employees to be terminated;
• employees of an associated entity of the business, including those based overseas.
• casual employees are not to be counted unless they are employed on a regular or systemic basis; and

The number of employees of the business should be taken at the time the employee is provided with notice of termination.

Essential tips for planning a smooth redundancy

1. Understanding Redundancy Laws in Australia

Before taking any steps, familiarise yourself with the Australian redundancy laws. Knowing your obligations and the rights of your employees will help you navigate this process smoothly and ethically. This is where an experienced workplace lawyer can be vital.

2. Clear Communication is Key

Transparent communication with your employees is vital during this challenging time. Clearly convey the reasons behind the redundancy, and be open to addressing concerns. This fosters trust and helps maintain morale among remaining staff.

3. Fair and Objective Selection Criteria

Establish fair and objective criteria for selecting employees for redundancy. This could include skills, performance, or other relevant factors. Having a clear and unbiased process ensures a smoother transition for both the departing and remaining team members.

5. Offering Support Services

Providing support services, such as career counseling or access to job placement resources, can ease the transition for employees facing redundancy. Demonstrating a commitment to their well-being reflects positively on your company’s values.

6. Consultation with Employees

Engage in open dialogue with affected employees. Seek their input, listen to their concerns, and provide an opportunity for them to express their thoughts. This collaborative approach can lead to more positive outcomes for everyone involved.

When planning a redundancy, the key is to navigate this challenging process while maintaining the integrity of your business. Remember, the key is to plan thoughtfully, communicate openly, and prioritise the well-being of your team.

Key Takeaways 

Deciding to make an employee’s role redundant is a tough decision. Once you’ve determined its necessity, it’s crucial to proceed cautiously and follow the correct procedure to minimise the chance of a successful unfair dismissal or general protections claim.

If you’re considering employee redundancy, reach out to us at Progressive Legal. Our experienced workplace lawyers can provide you with a step-by-step guide and checklist for the redundancy process. We also offer insights on your eligibility to enact an employee redundancy and strategies to mitigate the risk of potential claims. Contact us today for expert advice.

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