What You Need to Know About Redundancy

Recently, there have been a lot of discussions around business’ survival practices in challenging times. For those who have to or will soon be forced to make some of their employees redundant, we know how emotionally and physically taxing this is.

The unprecedented disruptions caused by COVID-19 is causing many businesses to reflect on the best way to keep their company afloat over the coming weeks and months.

If none of the alternatives to redundancy work for your business and you can no longer cover for your expenses, ending your staff’s employment through redundancy might be your last resort.

When this time comes, there are several things to know to make sure that you’re compliant with Australian legislation and that you support the people you make redundant as best as possible. But before we get into the nitty gritty, let’s start with the basics…

What Is Redundancy?

Termination of employment due to redundancy is a form of dismissal by the employer. It carries with it the concept of involuntary termination of the employee’s employment.

However, rather than being a fault-based dismissal, redundancy is usually caused by factors such as economic conditions, business efficiency, or technological development.

It is important to note that when a redundancy occurs, it is the job itself, not the employee, that becomes redundant.

There are a lot of possible reasons as to why a specific position can be rendered obsolete. Some of the most common reasons include the following:

• Cost-cutting
• Business closure/relocation
• Business mergers/acquisitions
• New technology replacing manual work
• Streamlining of workplace roles

However, unlike popular belief, this may not be a “quick fix” solution in the short term as there are costs involved in making a role redundant.

What Redundancy Pay Is Payable?

The way redundancy payments are calculated is based on what is outlined in the Fair Work Act 2009.

Employees receive redundancy pay based on their continuous period of service with their employer. This amount is paid at the employee’s base pay rate for ordinary hours worked.

An employee’s base rate of pay is the pay rate they receive for working their ordinary hours, but does not include the following:

• incentive-based payment and bonuses
• loadings
• monetary allowances
• overtime or penalty rates
• any other separately identifiable amounts.

Does Redundancy Pay Apply To All Employees?

It’s worth noting that some employees don’t get redundancy pay when their job is made redundant. This includes the following:

– employees whose period of continuous service with the employer is less than 12 months

– employees employed for:

• a stated period of time
• an identified task or project
• a particular season

– employees fired because of serious misconduct

– casual employees

– trainees engaged only for the length of the training arrangement

– apprentices

Depending on the industry, and Modern Award coverage, some employees of a small business (fewer than 15 employees) may also not receive redundancy pay.

Notice Of Termination Pay

In addition to redundancy pay, an employer must not terminate an employee unless they have either:

• given the minimum period of notice
• paid the employee instead of giving notice (payment in lieu of notice). This is paid at the employee’s full pay rate as if they had worked the minimum notice period.

An employee’s full pay rate includes the following:

• incentive-based payments and bonuses
• loadings
• monetary allowances
• overtime or penalty rates
• any other separately identifiable amounts.

Unless specified within a contract of employment or Modern Award, the minimum termination notice period is:

Employees over 45 years old who have completed at least two years of service are also are given an additional week of notice.

Does Notice Of Termination Apply To All Employees?

An employer does not need to provide notice of termination (or payment in lieu of notice) to employees who:

– are casual

– are employed for a specified period of time, task or season (eg. a fixed term contract or a seasonal fruit picker)

– are fired because of serious misconduct (eg. engaging in theft, fraud or assault)

– have a training arrangement and are employed for a set period of time or for the length of the training arrangement (other than an apprentice)

– are daily hire working in the building and construction industry or meat industry

– are daily hire employee working in the meat industry in connection with the slaughter of livestock

– are weekly hire employee in connection with the meat industry and whose termination depends on seasonal factors.

What Happens If My Employer Goes Bankrupt Or Into Liquidation?

When businesses aren’t profitable or are unable to service their debt, the employer can decide to shut down their business. In this case, employees are one of the first parties to be affected and can sometimes lose their jobs. In addition to this, the employer may not be able to pay them for what they’ve already done and are entitled to get.

In Australia, employees can get help through the Fair Entitlements Guarantee (FEG) which provides a last-resort safety net for employees. The FEG is available to eligible employees to help them get their unpaid entitlements.

This can include:

• unpaid wages for up to 13 weeks (capped at the FEG maximum weekly wage)
• annual leave
• long service leave
• payment in lieu of notice for up to 5 weeks
• redundancy pay for up to 4 weeks per full year of service.

Note that it doesn’t allow employees to claim for their superannuation, reimbursement payments, one-off or irregular payments, bonus payments or non-ongoing or irregular commission.

Redundancy is not easy, for both the employer and the employee. The process can quickly become overwhelming, which is why staying informed on current legislation is critical for your business.

If you are considering making a position redundant and need assistance navigating the process, our ANZ HR Services Manager Jarrod can help. Get in touch!

Disclaimer: 

The information provided in this knowledge-based article is general in nature and is not intended to substitute for professional advice. If you are unsure about any facts mentioned, we recommend you contact our ANZ HR experts, Jarrod for further advice.