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What are redundancy entitlements?

What are redundancy entitlements?

If a business decides to lay off some of its employees due to a business closure or for retrenching, all relieved employees are entitled to a redundancy pay. My Business discusses what employers and employees should know about redundancy procedures and its accompanying entitlements.

Redundancy is defined as a situation where an employer relieves a single or a number of employees after a determination that a particular line of work is no longer needed by the business. Once this happens, both the work and the employee are considered as redundant. The employee will be relieved and is entitled to redundancy pay.

A specific position can be considered as redundant if it satisfies the following:

  • The termination is not in any way the employee’s fault;
  • The termination is not due to any normal labour turnover procedure; and,
  • An employer has fully decided that the employee’s job is to be taken off of the business.

It is important to keep in mind that redundancies are due to jobs becoming redundant and not the employee itself becoming redundant. Employers should also make sure that the criteria stated above must first be completely satisfied before filing for a redundancy claim or else risk being exposed to an unfair redundancy case.

Moreover, before carrying out the redundancy, employers must make a point to initiate a discussion with the concerned employee/s first. Employers must explain the reason behind the possible redundancy of their position/s: whether or not it is due to changes in operation or business restructuring. This discussion can also be the forum where the employer discusses redundancy payments with the employee/s.

Redundancy pay entitlements are also known as severance payments. Receiving redundancy entitlements are compulsory for all affected employee/s as stated in the Fair Work Act of 2009, regardless of previous agreements between the employer and the employee/s.

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How are redundancy entitlements calculated?

As per the National Employment Standards (NES), the severance pay of an employee is the amount payable to the employee/s throughout the duration of the redundancy pay period. This is usually determined from the employee’s base rate of pay for normal working hours. However, the base rate of pay does not include incentive-based bonuses and payments, monetary allowance, loadings, penalty rates and overtime rates.

The base rate of pay of an employee can be determined by referring to the table below:

Employment duration (at least)

Employment duration (but not exceeding)

 

1 year

2 years

4 weeks

2 years

3 years

6 weeks

3 years

4 years

7 weeks

4 years

5 years

8 weeks

5 years

6 years

10 weeks

6 years

7 years

11 weeks

7 years

8 years

13 weeks

8 years

9 years

14 weeks

9 years

10 years

16 weeks

10 years

 

12 weeks

 

The redundancy pay period can be determined based on the table above and is dependent on the employee’s length of stay in the business. If the employee has worked for the business for more than 10 years, then this means that their redundancy pay period is 12 weeks on account of leave entitlements.

The amount of the redundancy pay also depends on whether the NES was already effective during the duration of the employment. If the employee was employed before 1 January 2010, which is the NES’ effectivity date, the redundancy pay period will start only after the said effectivity date.

Employers can also choose to file for a reduction of redundancy claim to the Fair Work Commission. This claim will only be granted if the employer is able to find another employer for the employee or if the employer proves that it cannot pay the redundancy entitlements.

Who is entitled to redundancy pay?

There are certain rules and regulations that must be followed when it comes to addressing redundancy cases and determining whether an employee is entitled to a redundancy pay.

The Fair Work Commission outlines certain situations wherein an employee will not be entitled to receive a redundancy pay.

This includes the following:

  • Casual workers
  • Employees hired for less than a year
  • Employees hired to work on a specific task or on a seasonal basis
  • Employees terminated due to grave misconduct
  • Employees with a signed training agreement or whose employment is limited only to the training period
  • Employees who sign a redundancy agreement prior to entering the company
  • Employees in an industry where a redundancy award is applicable

There are a lot of loopholes when it comes to redundancy clauses—which is why it is important for employees to know their rights and responsibilities since there are some redundancy awards could take away the employee’s right to a redundancy pay.

Employees and employers alike are also advised to consult the Fair Work Commission regarding consultation requirements, redundancy pay entitlements, possible termination pay, notice periods and its possible effect on superannuation.

What are redundancy entitlements?
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