Getting Redundancy Right – A guide for Employers

Most employers are aware what redundancy is. However, time and time again, employers do not understand or do not implement the proper process for making a position redundant.

  1. What is redundancy?

Practically speaking, redundancy occurs when an employer no longer requires an employee’s job to be performed by anyone. Common examples of redundancy include the introduction of new technology, a downsizing of a business due to decreased sales or production, restricting following a merger or business takeover, or the employer decides to relocate the business overseas.

  1. What is not redundancy?
  • the dismissal of an employee on the basis that the employer no longer requires or wants that specific employee, rather than no longer requiring that position to be performed;
  • the transfer of an employee’s duties to another employee, rather than a distribution of an employee’s duties to a number of other employees; or
  • the replacement of an employee by a more qualified or experienced person.
  1. What do employers need to pay someone who they have made redundant?

Most employers are aware that they must pay to an employee at the end of their employment, be it by way of dismissal or redundancy, their salary or wages up until and including their last day of employment, as well as all accrued leave entitlements, including annual leave and any long service leave. However, an employer is not required to pay to an employee at the end of the employment relationship any accrued sick leave entitlements, unless otherwise provided for.

It is too often the case that employers disregard other entitlements that need to be paid when making a person redundant. Most importantly, employers must pay redundancy pay in accordance with a modern award, enterprise agreement or pursuant to the provisions of the National Employment Standards (NES). In most cases, but not all, an award or enterprise agreement will reflect the NES.

Another entitlement that most employers overlook is the requirement that if an employee is made redundant effectively immediately, that is they are not provided with notice that their position is being made redundant, an employer must also pay to the employee payment in lieu of notice. Most awards or enterprise agreements would provide for the amount of pay in lieu of notice is required, but is usually again a reflection of the NES.

It is also important that an employer be aware that if an employee is over 45 years of age and has completed 2 years of continuous service with an employer, that employee must also be provided with 1 week additional payment in lieu of notice.

Note:    if an employee in the ACT has served for 5 or more years and they are made redundant, an employer will also be obliged to pay to the employee their pro rata long service leave entitlement.

For more information please contact Anca Costin:

p: +61 2 6206 1300

e: acostin@elringtons.com.au