What Is Redundancy Pay?

by Caity Wynn, 3 minutes read
HOME blog what is redundancy pay

Redundancies are an unfortunate fact of life for small business owners, and common for team members working in competitive service industries. However there are important rules around redundancies that both employers and employees should be aware of so they get what they are entitled to. We reveal everything you need to know about redundancy pay in Australia so you can keep your business humming.

Determining the correct redundancy pay for employees

Redundancy pay isn’t the same for every employee – and not even for people working in separate industries. So it’s important that business owners do their research to find out how much a team member is entitled to when it comes to redundancy pay.

The Fair Work Ombudsman has a comprehensive redundancy pay webpage that will help both employers and employees understand their rights. It’s recommended that you use the pull-down ‘Industry’ tab to see information tailored for a specific industry. For example, a retail business owner can select ‘Retail’ and then choose their sub-industry of ‘Fast food or takeaway’. From there, a table shows how much an employee is entitled to if they’ve worked in that industry, dependent on the length of their employment. So a fast-food server who worked in the same business for one year would be entitled to four weeks’ redundancy, while an experienced team member who has been with the company for a decade would earn 12 weeks’ redundancy.

Similarly, business owners should be aware of the required notice periods for making employees redundant. Someone who has been with the company for more than five years, for example, is entitled to more notice than a relatively new employee.

How to calculate redundancy pay in Australia

When it comes to calculating redundancy pay, start by considering the ‘base rate’. This is the amount paid for ordinary hours or work, and it doesn’t include:

  • Overtime or penalty rates.
  • Loadings.
  • Incentive-based payments or bonuses.
  • Monetary allowances provided.
  • Other separately identifiable amounts.

Once you know the base rate, times it by the number of weeks’ redundancy the team member is entitled to. Again, use the Fair Work Ombudsman to figure out exactly how many weeks that should be according to industry. Note that 10 years is the maximum, and any employee who has worked for more than a decade is entitled to 12 weeks, no matter if they’ve worked there for 10 years or 30.

One final tip is for owners and employees to know understand the circumstances where someone may not be entitled to any redundancy. The following people shouldn’t expect a redundancy payout:

  • Casual employees.
  • Team members hired for under 12 months.
  • Seasonal workers.
  • Apprentices.
  • Anyone whose employment was terminated due to serious misconduct.

There are other circumstances that may apply, such as employees with training agreements or those who are under enterprise agreements with a redundancy clause. As always, it pays to do your research so you know what to expect!

Tips for employers when paying out redundancies

There are some hard-and-fast rules for making team members redundant. And whether you’re the boss or a team member, it pays to know what’s expected:

  • Team members must be given a notice period of redundancy in line with the length of their employment.
  • Redundancy packages differ according to industry.
  • Redundancy packages differ according to the number of years worked at the business.
  • Retrenchment packages may be negotiated, depending on circumstances. This may involve discussion around the amount received, taxation and new job opportunities.
  • Redundancy payments are tax free based on the years of service with the employer
  • Payments not included in redundancy packages include: lump-sum payments of unused annual leave; wages owing for work done; and payments made in lieu of superannuation benefits.

These tips should be discussed with payroll management to ensure the redundancy process is compliant.

It’s never easy making team members redundant, but it’s an unfortunate side effect of running a competitive small business. Luckily, there are ways to streamline time-consuming tasks and help your employees stay on track. Something as simple as a collaboration platform for your team or tasking software for your day-to-day activities could be the difference between staying in the black next financial year.

Learn more about workplace management today with Deputy.