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Everything you need to know about redundancy

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.

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.

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.

There are certain types of employees who are not entitled to a redundancy notice/additional payment in lieu of a redundancy notice. These include 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.

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.

Everything you need to know about redundancy
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