Usually, redundancy occurs when an employee’s job is no longer required or your company becomes insolvent or bankrupt. Redundancy can occur when the business introduces new technology and a human worker is no longer required, or there is restructuring of the business.
If you make your employees redundant, they may be entitled to redundancy benefits. However, this is largely dependent on their length of service and the award, agreement or contract that they were employed under.
Eligibility for redundancy pay
Where the employee is being redundant, you may be obligated to make a severance or redundancy pay.
Your business will be obligated to pay an employee redundancy pay if:
- The employee worked full time or part time;
- The employee worked more than period of 12 months; and
- Your company employed more than 15 employees at the time of the redundancy.
However, your company is not obligated to make redundancy payments, if the employee was casual, worked for less than one year or your company employed less than 15 employees at the time of the redundancy.
In addition, your company does not have to provide redundancy payments to employees that are:
- Only employed for a specific period of time, task or season; or
- Dismissed due to serious misconduct; or
- A trainee, and employed only for the length of their training contract
- An apprentice
Under the National Employment Standards, redundancy pay starts at four week’s pay for employees with at least one years’ service. Depending on whether the employee has an award, agreement or contract, this may entitle them to more redundancy pay.
How to give notice
To legally terminate an employee’s employment, an employer must provide them with written notice on their last day of employment.
You can choose to give notice by:
- Delivering it by hand;
- Leaving it to the employee’s last known address; or
- Mailing it to the employee’s last known address
The notice period
Your company can choose to:
- Allow the employee to remain employed throughout their notice period;
- Pay them out (otherwise known as payment in lieu of notice); or
- Elect to combine options (1) and (2).
If you pay the employee throughout the notice period, the amount paid must be equal to the full amount that the employee would have been paid if they had worked until the end of the notice period. This payment should be inclusive of:
- Incentive-based payments and bonuses
- Monetary allowances
- Penalty rates
- Any other separately identifiable amounts
Generally, an employee’s employment will end the day you make payment in lieu of notice. Indeed, if you choose not to pay out the employee, they will remain employed for the notice period.
For further information on how much notice needs to be given to an employee, please see our other article, ‘When can I terminate an employee?’
Key Takeaway Points
- If you choose to make your employees redundant it is important that you provide them with the proper amount of notice.
- Depending on the employee’s contract they may be entitled to redundancy pay, and it is therefore necessary for you to ensure that you pay them accordingly.
- Notice is an essential aspect of lawfully terminating any employment contract, so it is essential that you take the appropriate steps in providing proper notice and paying the employee throughout the notice period if necessary.