Redundancy can be a challenging experience, particularly for workers who are unsure about their rights and entitlements. One of the most pressing questions is whether they qualify for redundancy payment. In Australia, redundancy pay is a legal entitlement for employees whose jobs are no longer required due to changes in the business. But who is eligible for redundancy pay, and how is it calculated?
What is Redundancy Pay?
Redundancy pay is a form of compensation provided to employees who have been made redundant — that is, their role within the organisation is no longer required. This often happens due to restructuring, downsizing, or a business closure. Importantly, redundancy pay is not about the individual employee but the position they held. Your employer cannot simply terminate your employment and hire someone else to do the same job under the guise of redundancy.
Eligibility for Redundancy Pay
Eligibility for redundancy pay depends largely on your length of service with your employer. However, certain employees are excluded from redundancy entitlements, such as casual workers or those working for small businesses with fewer than 15 employees. To qualify for redundancy pay, you must have been employed for at least one year.
In general, most permanent employees are entitled to redundancy pay, which is calculated based on their length of continuous service with the employer. For example, employees who have worked for 1-2 years may be entitled to 4 weeks of redundancy pay, while those employed for 10 years or more are entitled to a minimum of 12 weeks of pay.
How Much Redundancy Pay Are You Entitled To?
The amount of redundancy pay an employee is entitled to is based on their length of service, and it is paid at the employee’s base weekly rate at the time of redundancy. This base rate does not include extras such as bonuses, penalty rates, or allowances.
Here is a simple breakdown of the minimum redundancy pay based on your years of service:
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Less than 1 year: No redundancy pay
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1-2 years: 4 weeks
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2-3 years: 6 weeks
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3-4 years: 7 weeks
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4-5 years: 8 weeks
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5-6 years: 10 weeks
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6-7 years: 11 weeks
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7-8 years: 13 weeks
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8-9 years: 14 weeks
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9-10 years: 16 weeks
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10+ years: 12 weeks (Note: this may be reduced if the employee is also entitled to long service leave)
These minimum amounts are outlined by the National Employment Standards (NES), but some awards, agreements, or contracts may entitle employees to more. If you need clarification on your redundancy pay, consulting with your union can help ensure you’re getting the correct amount.
Redundancy Process and Your Rights
For redundancy to be valid, the employer must be able to demonstrate that the role is genuinely no longer required. Common reasons for redundancy include company relocations, organisational restructuring, or the closure of the business.
Employers are also required to consult with employees about the proposed changes, which could affect their job security. This consultation process involves informing employees about the changes and giving them an opportunity to express their views. Failure to properly consult employees before making them redundant can lead to unfair dismissal claims, so it’s important to know your rights in such situations.
Redeployment vs. Retrenchment
If your job is made redundant, your employer is required to offer you redeployment into another suitable role, if available. This is a reasonable alternative that takes into account your skills, experience, and current pay. If no suitable role is available, then retrenchment occurs, and redundancy pay may be offered.
Refusing redeployment to a suitable role can affect your eligibility for redundancy pay. However, employers must make genuine efforts to offer you a role that is appropriate based on your qualifications and experience.
Casual Workers and Redundancy Pay
Casual workers are generally not entitled to redundancy pay, as redundancy pay is typically based on continuous service, and casual workers do not have the same employment security as permanent workers. Casuals often receive casual loading to compensate for not receiving benefits like paid leave and redundancy pay.
Redundancy Pay and Taxes
One question many workers have is whether redundancy pay is taxed. In most cases, redundancy pay is tax-free up to a certain limit, which depends on the length of service. For example, in the 2019/2020 financial year, the tax-free threshold was $10,638, plus $5,320 for each year of completed service. Any amount above the tax-free threshold is subject to tax at the standard rate.
Can You Still Get Redundancy Pay After 65?
In 2019, the Australian government extended the eligibility for redundancy pay to those aged 65 and older. Prior to this change, workers over 65 could face higher tax rates on redundancy pay. Under the new laws, redundancy pay is still tax-free up to the threshold, regardless of age.
Voluntary Redundancy
In some cases, an employer may offer voluntary redundancy as an alternative to compulsory retrenchment. Voluntary redundancy involves offering employees a financial incentive to leave voluntarily, thus reducing the number of positions to be made redundant.
Unfair Redundancy
If you believe your redundancy is unfair, it’s important to seek advice from your union or legal professional. For example, an employer cannot use redundancy as a way to unfairly dismiss an employee or hire someone else to fill the same role. If you feel your redundancy was handled improperly, you may have grounds for unfair dismissal claims.
Know Your Entitlements
Redundancy pay is an important protection for Australian workers whose roles are no longer needed. Understanding your rights, including eligibility, how much redundancy pay you are entitled to, and the redundancy process, is crucial in navigating this challenging experience. If you are unsure about your redundancy pay or feel that the process wasn’t handled fairly, seeking advice from your union or a legal professional is always a wise step.
