Redundancy pay

What Is Redundancy Pay?

Redundancy pay is a financial entitlement given to eligible employees whose jobs are terminated due to the role no longer being required, rather than performance-related issues. It serves as compensation for the loss of employment and aims to support the individual during their transition to new work.

In Australia, redundancy pay is governed by the National Employment Standards (NES) under the Fair Work Act 2009. Not all employees are entitled to redundancy payments — eligibility depends on factors such as the size of the employer, the employee’s length of service, and the reason for termination.

When Is Redundancy Pay Required?

Redundancy pay is typically required when:

• An employer no longer requires a person’s job to be performed by anyone (due to restructuring, downsizing, business closure, etc.)
• The employee is terminated as a result of this operational decision
• The employee has been employed on a continuous basis for at least 12 months

Common scenarios include:

• Business restructuring or outsourcing
• Introduction of new technology eliminating job functions
• Business insolvency or closure
• Mergers or acquisitions that consolidate roles

It is important to note that the job, not the person, is made redundant.

How Is Redundancy Pay Calculated?

Redundancy pay is calculated based on the employee’s base rate of pay for ordinary hours worked and their continuous service with the employer. The NES outlines the minimum redundancy pay scale as follows:

This payment is in addition to any accrued leave entitlements (such as annual leave) and required notice periods or payments in lieu of notice.

Who Is Excluded from Redundancy Pay?

Some employees are not entitled to redundancy pay under the NES, including:

• Employees with less than 12 months’ continuous service
• Employees working for small businesses with fewer than 15 employees
• Casual employees
• Employees whose fixed-term contracts expire
• Apprentices and trainees
• Employees terminated due to serious misconduct or resignation

It’s important to check whether an award or enterprise agreement offers more favourable terms.

Best Practices for Employers Managing Redundancy

1. Consult Employees: If covered by a modern award or enterprise agreement, employers must consult staff before proceeding with redundancy.
2. Provide Written Notice: A formal termination letter outlining the reason and entitlements should be given.
3. Calculate Accurately: Ensure redundancy pay, unused leave, and notice period payments are correctly calculated.
4. Comply with Tax Rules: Redundancy pay is taxed differently to normal wages. Ensure correct treatment under ATO guidelines.
5. Offer Support: Consider providing outplacement services or counselling support for affected employees.
6. Use Payroll Software: Tools like Microkeeper’s payroll software can automate compliance, notice tracking, and payment calculations.

How Microkeeper Helps with Redundancy Pay

Microkeeper supports Australian businesses in managing redundancy processes accurately and fairly by providing:

• Termination workflows that account for length of service
• Leave and payout calculators including notice periods, annual leave, and long service leave
• Payroll audit trails for compliance documentation
• Payslip generation that includes redundancy components
• Single Touch Payroll (STP) integration for reporting final events to the ATO

FAQs About Redundancy Pay

Is redundancy pay taxed?

‍Yes, but concessional tax treatment applies up to certain caps depending on age and years of service. Refer to the ATO redundancy pay tax guide for details.

Do casual workers receive redundancy pay?

‍No, redundancy pay under the NES is not applicable to casual employees.

What if a similar role is offered elsewhere?

‍If an employer offers a comparable alternative position, and the employee refuses, they may not be entitled to redundancy pay.

Final Thoughts

Redundancy pay is a vital safety net for employees and a legal obligation for employers during genuine redundancies. Understanding eligibility, accurate calculation, and compliance is crucial — not only for meeting your obligations but also for maintaining a reputation as a fair and responsible employer. With integrated systems like Microkeeper, managing redundancies becomes smoother and more transparent.

_{Disclaimer: This article is for informational purposes only and does not constitute legal advice. For specific redundancy or termination concerns, consult the Fair Work Ombudsman or a legal professional.}