Financial constraints and business restructures often result in services or roles no longer being required by your business. In such circumstances, you may seek to dismiss an employee or team that is no longer required by making them “redundant”.

There are several important factors to consider to ensure that a redundancy is “genuine” and, if so, correct calculation of the redundancy pay that the employee is entitled to, as getting it wrong may expose your business to unnecessary and costly claims.

What is a genuine redundancy?

Job no longer required

As set out in section 389 of the Fair Work Act 2009 (Cth), a genuine redundancy occurs where an employee is dismissed because their position no longer needs to be filled anymore. This generally arises for two main reasons:

  1. The job is no longer required by your business due to a downturn in trade in that area of the business; or
  2. There has been a change or restructure to the operational requirements of your business.

Consultation obligations

Irrespective of the reason, a redundancy is only genuine if you fulfil the consultation obligations in accordance with the terms of any workplace agreements i.e. applicable modern awards or enterprise agreements. In circumstances where no workplace agreements exist, it is incumbent on you to consult with the potential redundant employee to avoid a claim that the dismissal was harsh, unjust or unreasonable.

Reasonable redeployment

As further provided in section 389 of the Fair Work Act 2009 (Cth), an employee’s redundancy will not be genuine if you fail to offer reasonable deployment of the employee within your business enterprise or the enterprise of an associated entity of your business. Whether it is reasonable to offer the employee redeployment is considered on the facts and circumstances that existed at the time of the employee’s dismissal, including:

  • whether there was a role available to redeploy the employee;
  • the nature of the available role;
  • the qualifications required to fulfil the role; and
  • the employee’s skills, experience and qualifications.

Redundancy payments – who is entitled and who isn’t?

Not all employees are entitled to redundancy payments. Generally, the following employees will not be entitled to payment on redundancy:

  • employees with less than 12 months continuous service with your business;
  • employees employed for a fixed period of time;
  • employees dismissed because of serious misconduct;
  • casual employees;
  • apprentices; and
  • employees of a small business (in certain circumstances).

How is redundancy pay calculated?

Put simply, the formula to calculate an employee’s redundancy pay is as follows:

The employee’s base rate of pay     x     The employee’s redundancy entitlement

An employee’s redundancy entitlement amount is dependent on their years of continuous service. Continuous service is the period during which the employee was employed with your business, less any unauthorised absence or unpaid leave.

In the absence of a workplace agreement which may provide more generous redundancy or severance benefits, the National Employment Standards set out the minimum redundancy entitlement as follows:

Years of Continuous Service Redundancy Entitlement
At least 1 year but less than 2 years 4 weeks
At least 2 years but less than 3 years 6 weeks
At least 3 years but less than 4 years 7 weeks
At least 4 years but less than 5 years 8 weeks
At least 5 years but less than 6 years 10 weeks
At least 6 years but less than 7 years 11 weeks
At least 7 years but less than 8 years 13 weeks
At least 8 years but less than 9 years 14 weeks
At least 9 years but less than 10 years 16 weeks
At least 10 years 12 weeks

 

After 10 years continuous service, an employee’s redundancy entitlement does indeed decline as the employee will also be entitled to long service leave payments.

Key takeaways

When choosing to make an employee redundant, it is important to consult with the employee, review your business operations and available positions to consider if there is any positions accessible for redeployment of the employee and review the employee’s years of continuous service to correctly calculate their redundancy pay. Failure to do so may see an employee bring a claim of unfair dismissal or general protections claim against your business.