Requirements for paying out redundancies
8 August 2016
Shane Wescott, Principal
Ensuring that redundancies proceed as smoothly as possible can be a difficult exercise. In this, our final article in our three part series on redundancy, we discuss the requirements around paying out redundancies.
After having firstly decided to implement redundancies, and successfully established who will be made redundant, it is important to ensure that the correct process is followed in paying out the redundancies.
The National Employment Standards (NES) set out the relevant requirements in relation to redundancy pay. Broadly speaking, the main things to consider are:
– whether the employee is entitled to redundancy pay; and
– the appropriate amount of redundancy pay.
Who is excluded from an entitlement to redundancy pay?
Broadly speaking, redundancy pay under the NES is not payable to the following:
– employees of small business employers (employers with fewer than 15 employees);
– an employee whose period of continuous service with the employer is less than 12 months;
– an employee employed for a specified task, for a specified period, or for duration of a specified season;
– casual employees;
– apprentices; or
– an employee dismissed for serious misconduct.
It is important to note that even if the relevant employee is not entitled to redundancy pay under the NES, employers should ascertain whether a contract of employment, Modern Award, or enterprise agreement confers an entitlement to redundancy pay on the employee.
How much to pay?
The NES sets out the amount of redundancy pay due as per the below:
Employee’s period of continuous service with the employer on termination – Redundancy pay period
Less than one year’s continuous service – Nil
At least 1 year but less than 2 years continuous service – 4 weeks’ pay
At least 2 years but less than 3 years continuous service – 6 weeks’ pay
At least 3 years but less than 4 years continuous service – 7 weeks’ pay
At least 4 years but less than 5 years continuous service – 8 weeks’ pay
At least 5 years but less than 6 years continuous service – 10 weeks’ pay
At least 6 years but less than 7 years continuous service – 11 weeks’ pay
At least 7 years but less than 8 years continuous service – 13 weeks’ pay
At least 8 years but less than 9 years continuous service – 14 weeks’ pay
At least 9 years but less than 10 years continuous service – 16 weeks’ pay
At least 10 years continuous service – 12 weeks’ pay*
* Entitlement to redundancy pay is reduced after 10 years continuous service as it is assumed that the employee will be entitled to long service pay after this time.
In addition to taking into account the above, is important to closely review any relevant Modern Award, enterprise agreement, or employment contract applicable to the employee. These instruments may confer upon the employee an entitlement to redundancy pay in excess of the minimum conferred by the NES.
Additionally, it is important to recognize that the entitlement to redundancy pay is separate and in addition to any entitlements accrued by the employee, such as annual leave or long service leave.
These entitlements must be paid to the employee in addition to any redundancy entitlement. Similarly, the employee must be given the appropriate period of notice, or be paid in lieu of notice, in addition to the redundancy payment and any employment entitlements.
When considering redundancies in the workplace, employers should remember that the nature of a business will determine how a redundancy is decided, how it is discussed with employees, and how it will be implemented.
It is always recommended that employers consult legal practitioners before making any concrete decisions to help minimise workplace disruption and reduce the risk of legal action.