When Is an Employer Exempt From Redundancy payments?

Are you required to pay redundancy to an employee being terminated? Make sure you know your redundancy obligations.

What is redundancy?

Redundancy is when a job no longer exists, because of financial or operational issues. It happens for a number of reasons including when new technology replaces the need for an employee. Otherwise, this can happen if a business shuts down, relocates, becomes bankrupt, has low sales, or restructures in a merger.

Termination can be considered an unfair dismissal if there is not a genuine redundancy. This is when a job is no longer needed because of operational changes in a company. Further, the correct duties of the relevant award or enterprise agreement need to be met. Finally, the employer is obliged to exhaust attempts to redeploy the employee in the enterprise.

Employers should protect their business from potential legal issues by recording the termination in writing using a Termination Letter.

Notice of redundancy

A formal notice needs to be given to an employee in writing of their dismissal. An employee can receive a notice in person or in the mail. Based on their length of continuous service, a minimum notice period is required under law for termination:

However, limitations on notice periods apply to daily hire employees in the construction and meat industry, and weekly seasonal hire employees in the meat industry.

Instead of giving a notice period, an employer can choose to pay out the employee the full amount they would earn (pay in lieu of notice). As a result, a pay in lieu of notice must include incentive-based bonuses, loadings, monetary allowances, overtime, penalty rates.

To determine your expected redundancy entitlements, the Fair Work Commission has set-up a pay calculator.

Employers who are not required to pay redundancy

Redundancy pay is not required by an employer if they either:

  1. find the redundant employee other acceptable employment,

  2. are unable to afford a payment due to bankruptcy or other circumstances

  3. are a small business with less than 15 employees.

The following employees won’t get redundancy pay:

  • Employees dismissed because of serious wrongdoing

  • Casual employees

  • Trainees as part of a training agreement

  • Apprentices

  • Employee employed for a particular period of time, or because of a task, or season

  • Employees whose period of continuous service with the employer is less than 12 months

A Deed of Release at the termination of an employee will finalise any pending issues between you and the employee. A Deed of Release covers payments, releases, confidentiality, and a warranty by the terminated employee.

Unsure where to start? Contact us today on 0404 463 382 or info@dreamstonehr.com.au for an obligation free discussion on how we can help.

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