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Everything you need to know about redundancy

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Everything you need to know about redundancy

Getting relieved due to redundancy is probably one of the worst nightmares of any employee. But this doesn’t mean that relieved employees aren’t entitled to specific rights and compensations that are applicable to their situations. My Business discusses everything employers and employees need to know about redundancy.

What is redundancy?

Redundancy occurs when an employee gets laid off from their job after the company renders their job/s as obsolete. This can happen to one person, or the company can decide to tag several jobs from several departments as redundant. However, this only happens when the business decides to cut its expenses or is already at the brink of bankruptcy.

However, once a business hires another person to fill in a position previously rendered as redundant, this is by no means a redundancy and employees must be able to protect themselves by knowing their rights and by knowing what actions they can take, such as filing an appeal against redundancy.

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But for genuine redundancies, there are a lot of possible reasons as to why a specific position can be rendered obsolete. Some of the most common reasons include the following:

  • Cost-cutting
  • Business closure/relocation
  • Business mergers/acquisitions
  • New technology replacing manual work
  • Streamlining of workplace roles

What is a non-genuine redundancy?

A redundancy claim made by a business can be considered as non-genuine if the business has failed to meet certain terms and conditions that are needed for a genuine redundancy to take place. Australian redundancy rules and regulations are a bit complicated, but learning its basics are enough for employees to know whether a redundancy is considered genuine or otherwise.

A fair work redundancy will be considered as a non-genuine redundancy if the business has recently hired new employees or intends to do so in the future, despite their claims of redundancy in certain jobs. Another indicator of a non-genuine redundancy is when an employee gets tagged as redundant after getting poor employee performance reviews, or has a poor working relationship with their immediate superior/s.

If an employee is rendered as redundant due to any of the following: race, religion, sex, marital status, disability, political affiliations/views, etc., then this also falls under non-genuine redundancy. Other possible reasons for non-genuine redundancies include failure to undergo a proper consultation with the redundant employees and failing to issue a redundancy pay for the employees.

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If a non-genuine redundancy has been confirmed, employees can file for an unfair dismissal claim. Learn more about unfair dismissal here.

What is a voluntary redundancy? 

A voluntary redundancy occurs when an employer asks an employee to sign an employment termination agreement in exchange for financial compensation. Voluntary redundancy is usually offered to employees who have already rendered more than 10 years of service or senior employees. However, every employee has the right to apply for a voluntary redundancy anytime they would like. Learn more about voluntary redundancy here.

Asking for voluntary redundancy 

Technically, all employees across Australia have the right to apply for a voluntary redundancy whenever they wish. Interested employees who want to apply for a voluntary redundancy will only have to inform their employer of their decision, and their employer will immediately have to set proper redundancy consultations before the actual signing of the redundancy agreement takes place. 

 

Redundancy policy in Australia 

According to the Fair Work Ombudsman, the redundancy policy in Australia is simply tagged as something that can happen once the business decides to automate an employee's job, once production slows, declares bankruptcy, restructures and/or merges with another business, and relocates whether interstate or overseas.

Employers must adhere to a proper redundancy consultation with its employees before signing an actual redundancy agreement since failing to do so could lead to an unfair dismissal case which can cost the business a lot of money, time and effort. 

Voluntary redundancy rules 

The main rule when it comes to voluntary redundancy is that both employees and employers should make conscious efforts to actively monitor ongoing redundancy consultations and processes in order to ensure that both parties make decisions that will not in any way endanger the business' abilities to survive a trade downturn which can be the effect of the said redundancy. 

When is redundancy paid?

Redundancy payments are usually made once all redundancy consultations have been finished, the employee has understood the terms of the redundancy and is aware that they are making an informed decision, and once the agreement has been signed. Keep in mind, however, that there are certain circumstances wherein redundancy payments don't have to be made, depending on employee status and business type. 

 

Are redundancy payments tax-free?

Redundancy payments are usually tax-free as long as the redundancy is genuine, and the payments do not go over the tax-free limits set by the Australian Taxation Office (ATO). The tax-free limit is usually just a specific base amount plus a corresponding amount for each year of service that an employee has rendered with their employer.

However, individuals must keep in mind that the ATO’s tax-free limit is being adjusted annually and last year’s tax-free limit could either be higher or lower than this year’s limit.

The inclusions in a redundancy payment may vary depending on the existing contract between the employee and the employer, although this usually includes the following:

  • Severance package (unused sick leaves, compensations for length of service, etc.)
  • Payments as a substitute for the required notice period
  • A significant sum as compensation for the redundancy

The following items are not included in a redundancy payment:

  • Unpaid wages/allowances for finished work
  • Lump sum for unused long service leaves/annual leaves
  • Payments in lieu of superannuation-related benefits

Employers can refer to the redundancy payment table below in order to identify whether their redundancy payments are taxed or otherwise:

Payment component

Tax treatment

Genuine redundancy payments (up to AU$10,155 plus AU$5,078 for every year of completed service)

Tax-free

Non-genuine redundancy payment

Taxable

*Remaining redundancy payment/employment termination payment (ETP)

Taxable


*The remaining redundancy payment is higher than the tax-free limit.

What is the required minimum redundancy notice period?

The required minimum redundancy notice period will usually depend on the years of service that an employee has rendered prior to the redundancy. Consider the table below for determining the appropriate notice period for redundant employees:

Period of continuous service

Minimum notice period

Less than or equal to 1 year

1 week

More than 1 year but less than 3 years

2 weeks

More than 3 years but less than 5 years

3 weeks

More than 5 years

4 weeks

 

Employers must take note that employees aged 45 years and above with at least two years of service are entitled to an additional week of redundancy notice.

Do I have to pay redundancy? 

There are certain types of employees who are not entitled to a redundancy notice/additional payment in lieu of a redundancy notice. This includes the following:

  • Casual employees
  • Fixed-term/seasonal employees
  • Employees fired due to grave misconduct
  • Employees with set training arrangements
  • Daily hire employees in the meat/construction industry
  • Daily hire employees working in livestock slaughter
  • Weekly hire employees in the meat industry

Employers have the option of paying an employee instead of giving a redundancy notice. An employee’s full pay rate/redundancy pay rate will usually include allowances, penalty rates, incentives and bonuses, and other identifiable amounts.

What is the difference between voluntary redundancy and compulsory redundancy?

The main difference between voluntary redundancy and compulsory redundancy is that with voluntary redundancy, employees can usually choose whether to avail of this particular kind of redundancy and isn't necessarily linked to the nature of their jobs.

On the other hand, compulsory or involuntary redundancies often leaves employees with no choice but to accept the accompanying conditional compensation and is usually caused by the business rendering their tasks redundant, particularly after automation of the business. 

Is re-employment after redundancy allowed?

Technically, there is no specific clause under the Fair Work Act which prohibits businesses from re-hiring individuals who were previously relieved of their positions due to redundancy, provided that the redundancy is genuine.

However, certain businesses and corporations might have internal rules and regulations which prohibits the re-employment of redundant employees during a given timeframe. This is entirely dependent on the company’s own discretion, and employees are not required by law to repay redundancy entitlements should they get re-hired. Companies usually have a 1-year prohibition period for redundant employees, so this means that redundant employees can only get re-hired after a year.

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