Losing a job to redundancy can come as a real shock. It often lands at a time when people have bills to pay and plans in place. Knowing the basic rules helps you check that you are being paid what you are owed. It also helps employers handle a hard conversation fairly and lawfully.
In Australia, most redundancy rules for employees in the national system come from the Fair Work Act 2009 and the National Employment Standards. Awards and enterprise agreements can add their own terms. This article explains notice, redundancy pay and what makes a redundancy genuine. It is general information only, so check the rules that apply to your own job.
What redundancy actually means
The Fair Work Ombudsman describes redundancy as the point where an employer no longer needs a job done by anyone. It can also happen when an employer becomes insolvent or bankrupt and the employment ends. The key idea is that the job itself becomes redundant, not the person doing it. Common reasons include new technology, a drop in sales, a closure, a relocation or a restructure after a merger or takeover.
Because the focus is on the job, a redundancy should not be used to remove someone for their performance or conduct. If the same work still needs to be done by someone else, the redundancy may not be genuine. Business owners planning a restructure often have wider legal questions at the same time. Our article on choosing a commercial lawyer covers what to look for in that kind of help.
Notice of termination
Under the National Employment Standards, an employer must give a minimum period of notice before ending someone’s employment. The minimum depends on how long the employee has worked for the business without a break. An employer can also pay the employee instead of having them work out the notice period. That payment is made at the employee’s full rate of pay, as if they had worked the whole period.
Minimum notice periods
The minimum notice is one week for service of one year or less. It rises to two weeks for more than one year and up to three years. More than three years and up to five years attracts three weeks. More than five years attracts four weeks.
Employees over 45 who have at least two years of service when notice is given receive one extra week. Full pay for this purpose includes incentives, bonuses, loadings, allowances and overtime or penalty rates. Awards and enterprise agreements can set different notice rules. It is worth reading the award or agreement that covers the role before doing any sums.
How redundancy pay is worked out
Redundancy pay is separate from notice. It is based on continuous service, which is the length of time someone has been employed by the business. Periods of unpaid leave are not included in that service. Redundancy pay is calculated at the base rate for ordinary hours, so incentives, bonuses, loadings, allowances and overtime are left out.
The Fair Work Ombudsman fact sheet on notice and redundancy pay sets out the standard scale. It runs as follows for employees who are eligible. Check it against any award or agreement before relying on it.
- 1 year but less than 2 years: 4 weeks
- 2 years but less than 3 years: 6 weeks
- 3 years but less than 4 years: 7 weeks
- 4 years but less than 5 years: 8 weeks
- 5 years but less than 6 years: 10 weeks
- 6 years but less than 7 years: 11 weeks
- 7 years but less than 8 years: 13 weeks
- 8 years but less than 9 years: 14 weeks
- 9 years but less than 10 years: 16 weeks
- 10 years or more: 12 weeks
The scale drops back to 12 weeks for service of 10 years or more. The Fair Work Ombudsman explains this follows the 2004 Redundancy Case decision. Some awards include industry specific redundancy schemes that apply instead of the standard scale. Registered agreements can also set their own redundancy terms.
Who does not get redundancy pay
Not every employee is entitled to redundancy pay under the National Employment Standards. Employees with less than 12 months of continuous service are generally excluded. So are employees on a fixed term contract or engaged for a season, and those dismissed for serious misconduct. Most casual employees, trainees engaged only for a training agreement and apprentices are also excluded.
The small business exemption
Most employees of a small business employer are not entitled to redundancy pay under the National Employment Standards. A small business employer is one with fewer than 15 employees when notice is given. All employees are counted, but casuals are only counted if they work on a regular and systematic basis. Associated entities are counted as one, and employees being dismissed at the same time are included.
A larger business that falls below 15 employees while downsizing may still have to pay redundancy pay. This can include a business that shrinks during insolvency or liquidation. Small employers should still check their award, since award terms can differ. Running a small business brings other legal duties too, such as the health and safety laws for a new business that owners need to understand.
When redundancy pay can be reduced
An employer can apply to the Fair Work Commission to reduce the amount of redundancy pay. This is possible if the employer finds other acceptable employment for the employee. It is also possible if the employer cannot afford to pay the full amount. This option applies to redundancy pay under the National Employment Standards, not to award or registered agreement entitlements.
What makes a redundancy genuine
A genuine redundancy matters because it affects whether an unfair dismissal claim can be made. Section 389 of the Fair Work Act 2009 sets out when a redundancy is genuine. The employer must no longer need anyone to do the job because its operational requirements have changed. The employer must also have met any duty to consult under the relevant modern award or enterprise agreement. The Fair Work Commission explains that an unfair dismissal application cannot be made where the dismissal was a case of genuine redundancy.
A redundancy is also not genuine if it would have been reasonable to redeploy the person. That includes another role within the business or within an associated entity. If these tests are not met, the Commission must decide whether the dismissal was unfair. Strict time limits apply to unfair dismissal claims, so anyone who doubts their redundancy should act quickly.
Consultation before a redundancy
The Fair Work Ombudsman notes that all awards and enterprise agreements include a consultation process for major workplace changes. Once an employer has decided on major changes, it must notify the affected employees as soon as possible. It must give clear information about the changes and their expected effects. It must also discuss ways to reduce the negative effects and consider the ideas employees put forward.
Where 15 or more employees are to be made redundant, the employer must give Services Australia written notice before the dismissals. The notice must set out the reasons, the number and categories of employees affected and the timing. Some changes also affect people who are on leave or about to take it. Employers in that position should check their paid parental leave obligations as an employer before acting.
Planning for the business side
Redundancies often follow bigger decisions about premises, costs and the direction of the business. A relocation or closure can raise questions about existing contracts, including how long is left to run on a commercial lease. Thinking about these issues early gives owners more room to plan. It also gives staff a clearer picture of what is happening and why.
Frequently asked questions
Is notice the same as redundancy pay?
No, they are two different things. Notice is the minimum warning period, or payment instead of it, when employment ends. Redundancy pay is a separate amount based on years of continuous service. An eligible employee can be entitled to both.
Do casual employees get redundancy pay?
Most casual employees are not entitled to redundancy pay under the National Employment Standards. Casuals are also excluded from the standard notice rules. Some awards or agreements contain different terms, so it is worth checking the one that applies.
Can my employer pay me instead of giving notice?
Yes, this is allowed. The payment is at the employee’s full rate of pay, as if they had worked the notice period. Full pay includes items such as loadings, allowances and penalty rates. Awards and agreements may add their own rules.
Who decides if a redundancy is genuine?
The Fair Work Ombudsman says it cannot decide whether a redundancy is genuine. That question goes to the Fair Work Commission, usually after an employee applies for an unfair dismissal remedy. The employer then needs to show the requirements of section 389 were met.
This article is general information about Australian workplace law and is not legal advice. Some rules differ by state, award or agreement, and laws change over time. Speak with a qualified lawyer about your own situation.