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Bookkeeping – Redundancy – How does it work - How much Redundancy pay applies
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Published on Sunday, 15 April 2018 14:36
What is Redundancy all about, and how does it work? The Fairwork website, is summarised for key points here -
Redundancy happens when an employer either:
- doesn't need an employee’s job to be done by anyone, or
- becomes insolvent or bankrupt.
Redundancy can happen when the business:
- introduces new technology (eg. the job can be done by a machine)
- slows down due to lower sales or production
- closes down
- relocates interstate or overseas
- restructures or reorganises because a merger or takeover happens.
What's a genuine redundancy?
A genuine redundancy is when:
- the person’s job doesn't need to be done by anyone
- the employer followed any consultation requirements in the award, enterprise agreement or other registered agreement
When an employee's dismissal is a genuine redundancy the employee isn't able to make an unfair dismissal claim.
A dismissal is not a genuine redundancy if the employer:
- still needs the employee’s job to be done by someone (eg. Hires someone else to do the job)
- has not followed relevant requirements to consult with the employees about the redundancy under an award or registered agreement or
- could have reasonably, in the circumstances, given the employee another job within the employer’s business or an associated entity.
The need for Consulting with employees about major workplace changes
All awards and registered agreements have a consultation process for when there are major changes to the workplace, such as redundancies.
The consultation process sets out the things the employer needs to do when they decide to make changes to the business that are likely to result in redundancies. This has to be done as soon as possible after the decision has been made to make these changes.
Consultation requirements include:
- notifying the employees who may be affected by the proposed changes
- providing the employees with information about these changes and their expected effects
- discussing steps taken to avoid and minimise negative effects on the employees
- considering employees ideas or suggestions about the changes.
Source reference: Fair Work Act 2009 (Cth) section 119, 139, 388, 389
Best practice tip
The Termination of employment letter – redundancy emplate (DOCX 48.6KB) includes a step by step guide to handling the redundancy process.
For employers:
- talking to fix any problems
- getting help from us if you still can’t resolve it.
What to do next
Redundancy pay & entitlements
When an employee's job is made redundant their employer has to give them redundancy pay, also known as severance pay.
Use our Notice and Redundancy Calculator to calculate redundancy pay.
Redundancy pay doesn't need to be paid in some circumstances eg. by some small businesses and to casual employees.
To check if redundancy pay needs to be paid, go to Who doesn't get redundancy pay.
Redundancy pay
The amount of redundancy pay the employee gets is based on their continuous service with their employer. Continuous service is the length of time they are employed by the business and doesn't include unpaid leave.
If you're covered by a registered agreement, check the terms of your agreement for information about how much redundancy needs to be paid out and other entitlements. To find a registered agreement, go to the Fair Work Commission website
Find information about specific redundancy entitlements in your award by selecting from the list below.
Employers have to give at least the minimum notice and redundancy entitlements set out below
An award can say that employees get more notice an redundancy than these minimums. Use our Notice and Redundancy Calculator to work out if your award has more generous entitlements.
Redundancy pay is paid at the employee’s base rate for their ordinary hours of work, but doesn’t include
- incentive-based payments and bonuses
- loadings
- monetary allowances
- overtime or penalty rates
- any other separately identifiable amounts.
Any outstanding entitlements also need to be paid out – including annual leave and long service leave that the employee hasn’t taken.
Notice periods
An employer has to give the following minimum periods when making an employee’s job redundant. If the notice period isn’t worked, this is paid out as well as the redundancy pay.
Employees over 40 years old who have worked for the employer for at least 2 years get an extra week notice.
If you’re covered by a registered agreement, check the terms of your agreement for information. To find a registered agreement, go to the Fair Work Commission website.
Also helpful is to get a copy of … the Small Business Fair Dismissal Code and checklist (RTF 71.9KB) to make sure that a dismissal is fair.
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