The Essential Guide to Redundancy Payouts and Redundancy Notice Periods
By Indeed Editorial Team
Updated 30 December 2022
Published 17 December 2020
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Being laid off can be upsetting for an employee. To provide some relief, there are certain rights and privileges for an employee who is being made redundant. In this article, we discuss what you need to know about redundancy including how to calculate your redundancy payouts and the proper length of your redundancy notice period.
Why do employees receive a redundancy notice period?
When an employer no longer requires a job profile for its business outcomes, the role and the employee occupying it will probably be made redundant. Unlike a dismissal related to performance or conduct reasons, the basis for redundancy is the elimination of a role or even the department the employee works in. Thus, regardless of the individual's track record, the reasons for redundancy are usually beyond either the company's or the employee's control.
Related: How to Deal With Job Loss
What is the scope of redundancy?
The Fair Work Act 2009 extensively covers the situations that can qualify employees for redundancy and payouts accordingly. Based on the documents, here are some of the main reasons for employee redundancy:
A sudden or emerging change in the economic conditions of a business
Any situation arising out of a change in the business vision and priorities that require changes in functions
The emergence of new technologies and improved modes of operation that the business needs to adopt
Any of the above that forces a business to discontinue or reduce resources
Some other common business situations that end in redundancy include relocation of operations, restructuring or reorganising of a post, a sale, an acquisition or a merger and even a business downturn forcing discontinuation of initiatives.
However, if you believe your termination has been wrongly classified under redundancy, you could have a case for an unfair dismissal plea and claim. These are some scenarios where your dismissal may not qualify as a genuine redundancy:
Consequent to your dismissal, your employer hires a replacement to continue with the same work.
The employer has offered you a similar or related job in the same company or associated entities.
The employer has failed to consult you as per regulatory requirements or as agreed in the contract.
If you aren't sure about the genuineness of your redundancy, contact the Fair Work Commission within 21 days of your dismissal to lodge your complaints. Your complaints might be an irregularity in the redundancy notice period provided or concerns or delays in the payout due.
Details about redundancy notice periods
National Employment Standards (NES), set and overseen by the Fair Work Ombudsman, are employee entitlements that must be guaranteed by an employer. All employment-related matters such as awards, entitlements, notice periods, terminations, redundancies and agreements fall under NES. These guidelines also detail redundancy-related cases.
The notice of termination must be communicated in writing on the day the employment is terminated. The letter should either be handed over in person or made available by hand or mail at the address shared in the company records.
Furthermore, the redundancy notice period that an employee is entitled to depends on the number of years they've served in the company. This can range from a notice period of one week for continuous employment of less than a year to four weeks for those who have worked continually for over five years. For those who have served between one to three years, the notice period is two weeks, while those with three to five years are entitled to three weeks.
There are situations where the redundancy notice period can be longer than what is stated above. For instance, an extra week is added to the notice period of an employee who is over 45 and has worked with the employer for over two years. Another instance of a longer notice period – in this case, five weeks – is when the establishment goes bankrupt.
Also, it is possible to accept payment in lieu of the notice period itself for a higher redundancy payout.
What comprises redundancy payouts?
If you were made redundant by your company, then you are entitled to payouts as per the regulations outlined in the Fair Work Act. You can also consult the Work Act 2009 to determine the base redundancy payout. Your base hourly rate and the number of continuous years you have worked with the company – also known as continuous years of employment – are used to calculate the minimum amount you're due. Continuous years of employment is the period the employee has worked without any unauthorised or unpaid leave or absence.
Here are the basic things to consider when figuring out your exact redundancy payout:
Formula to calculate redundancy payouts
Here is the formula for calculating redundancy payouts:
Redundancy pay = (base pay) X (period eligible for redundancy pay)
These estimates – because they refer to base – may exclude other perks and allowances including incentive-based payout, bonuses, overtime, penalty rates, loadings and other such monetary payments outside of the base pay rate. Any outstanding entitlements during the period of continuous employment, such as unused annual leave and other accrued leave not yet used, should also be paid out as per the NEP standards and the contract agreement and award.
Redundancy pay periods by years of service
Depending on the tenure of the employment, you may be eligible for redundancy pay worth up to 16 weeks of your base pay at the company. You qualify for a payout of four weeks if you have between one to two years of continuous employment.
Here is a list of the redundancy pay period you are entitled to for the duration of your continuous employment:
One year to less than two years: Four weeks
Two years to less than three years: Six weeks
Three years to less than four years: Seven weeks
Four years to less than five years: Eight weeks
Five years to less than six years: 10 weeks
Six years to less than seven years: 11 weeks
Seven years to less than eight years: 13 weeks
Eight years to less than nine years: 14 weeks
Nine years to less than 10 years: 16 weeks
10 years and above: 12 weeks
Additionally, beyond the general stipulations under the Fair Work Act, you should check the employer's policies for any helpful severance terms and conditions that are typically offered during hiring to attract new talent and encourage loyalty among existing employees. For instance, if you had signed any documentation confirming compensation terms with your employer when you joined, make sure those terms are enforced when you're leaving your job.
Regulations outside of the Fair Work Act
Besides the safeguards under the Fair Work Act, there are 'industrial instruments' that can help you secure higher compensation than the minimum amount guaranteed by the Fair Work Act 2009. Industrial instruments are a workplace agreement that regulates the relationship between employers and employees, preventing and resolving disputes between both parties. They cover basic employee workplace rights like being consulted on any major workplace change, enforcing work hour limits and defining rest hours and essentials like first aid at work.
The Modern Award is one such industrial instruments, which is more specific to an employee's industry and profile and varies from case to case. For example, a full-time employee is entitled to four weeks' annual leave as per the National Employment Standards. However, if an employee is covered under Modern Awards and the employment contract cites five weeks annual leave, they'll be entitled to the additional week of leave.
Similarly, an Enterprise Agreement benefits professionals in certain businesses or groups, especially the public service sectors. These can be helpful during redundancy depending on the clauses agreed on in the employment contracts. An example of an Enterprise Agreement benefit could be a special allowance or a bonus upon completion of a certain duration with the company and/or upon the termination of employment by the employer.
Sometimes a company can take the strategic decision to reduce its headcount because of a business restructuring or even downsizing. When this happens, employees may be encouraged to volunteer themselves for redundancy.
Who does not qualify for redundancy payouts?
Although dismissals for specific reasons like underperformance and misconduct will disqualify employees from redundancy payouts, other factors can exempt an employee from this compensation. First off, as long as you have been in continuous employment for over 12 months and have been hired for a certain period and specified role, you're bound by the redundancy clause – meaning you qualify for redundancy payouts. However, apprentices and casual employees are not entitled to redundancy payouts.
Similarly, small businesses are not obligated to make redundancy payouts. As per the Fair Work Act 2009, any establishment that has fewer than 15 employees is a small business and is therefore exempted from redundancy regulations. However, this small business definition isn't true for some select sectors. In this regard, an employee's eligibility for redundancy payouts will depend on the specific industry the company falls in and the related industrial instrument applicable.
In addition, eligible employees of bankrupt companies – or businesses on the verge of liquidation – can pursue their case under the Fair Entitlements Guarantee (FEG) to claim their entitlements.
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