ALL YOU NEED TO KNOW ABOUT REDUNDANCY

You wake up one morning, full of energy and desire to work, only to find out that your services are no longer required and that you’ve been relieved. Redundancy is an employee’s biggest fear, and for a good reason.

 
However, before you fall into despair, you should know that even in the worst-case scenario, you still have rights. It all depends on the situation, but employers will have to compensate their employees, one way or another.

 
If you have questions about redundancy regulations in Australia, then you’ve come to the right place. Whether you want to know more about redundancy, non-genuine redundancy or voluntary redundancy, we’ve got you covered!

 

Redundancy: What Is It?

 
Redundancy occurs when an employee’s work, for one reason or another, is no longer required. The employer is unable to redeploy or offer the employee an alternative role within the same company/establishment. This may happen to just one person or to several people within the same department.

 
It is possible to file an appeal against redundancy if, for example, one finds out that their position, which was previously rendered redundant, has been offered to someone else. Most redundancies, however, are genuine and can happen for several reasons:

 

  • Advanced machinery is replacing manual work.
  • The company/business is at the brink of bankruptcy and cuts are necessary.
  • The business is closing or is being relocated.
  • A merger or acquisition is underway.
  • Roles are being reassigned and redistributed, which means that some employees might be left without a job.

 
Employers are not always required to compensate their employees in case of redundancy. For example, compensation is not given if said business is too small (fewer than 15 employees). Same applies if the employee is an apprentice or if their service was terminated due to grave misconduct. Casual and fixed-term employees are not entitled to compensation either.

 
A redundancy claim is genuine if the employer can prove that the termination of service was due to one of the above reasons. In Australia, redundancy regulations are quite complicated, but it’s important that employees know what their rights are.

 
Redundancy can be considered non-genuine if the business has claimed redundancy in certain jobs and positions but at the same time, seems to have hired new employees or plans to do so in the near future. Redundancy is also non-genuine when an employee is relieved due to poor performance reviews or due to discrimination against their race, gender, religion, disability, marital status etc.

 

Voluntary Redundancy

 
In a voluntary redundancy, an employer may call for employees who would like to be voluntarily made redundant in exchange for financial compensation. An employer may do this as part of a restructure. An employee may take up the voluntary redundancy offer for a variety of reasons:

  • Close to Retirement
  • Looking to change jobs
  • The compensation is too good to pass up.

 

The point of voluntary redundancy is finding common ground. The employee is guaranteed compensation for having to leave the business while the business itself is able to make changes to its structure and achieve long term

 

Before any redundancy agreement is signed, employers are required to properly consult and inform their employees about the decision. If employees are not informed in good time about redundancy plans that directly affect them and their position, they can claim that their redundancy is an unfair dismissal case.

 

Redundancy Tax And Payments

 
Payments can be arranged once redundancy consultations have been finished. By signing the agreement, employees confirm that they are aware of all the terms and are making an informed decision.

 
Redundancy payments are not taxed, provided that the redundancy is genuine. The payments also need to be within the set tax-free limit. This limit is usually a base amount plus a corresponding amount on top of that for each year of service.

 
Depending on the contract, redundancy payments may include unused sick leave, payments for the notice period and a significant sum that is given as compensation for redundancy. However, redundancy payments usually don’t include unpaid wages, annual leave, long service leave or payments in lieu of super benefits. Be aware if you are aged over 65 years, you are currently not entitled to the concessional tax treatment for a genuine redundancy.

 
In the case of redundancy, employers need to inform their employees in good time. If the employee has provided continuous service of less than or equal to one year, the minimum notice period is 1 week, up to 4 weeks for continuous service of more than 5 years.

 

Voluntary vs Compulsory Redundancy

 
Voluntary redundancy has its benefits. Although employees who do accept a voluntary redundancy offer are technically not resigning, it’s usually preferred over a compulsory redundancy. The element of choice takes some pressure off the business’ shoulders. The compensation offered is usually satisfactory and the employer doesn’t have to point fingers, knowing that at least some of the targeted employees will take the offer and walk away.

 
However, with voluntary redundancy, the business risks losing its best and brightest who might see the redundancy as an opportunity to cash in on the entitlements. Those who perform best are usually the ones to leave first, knowing that the job market will welcome them with open arms.

 
Voluntary redundancy protects and preserves the company’s image. It also minimises the effects that such a decision would otherwise have on staff morale and productivity. Employees would rather accept a voluntary redundancy rather than being forced to leave, even if compensation would be the same in both cases.

 
Re-employment after redundancy is not prohibited under the Fair Work Act, provided that the redundancy was genuine. Most business will have regulations in place that prevent employees from rejoining their ranks within a given timeframe (usually one year).

 

Under tax laws it it important that there is no “arrangement” entered into between the employee and the employer to arrange employment after a redundancy. If an arrangement exists, the payment will not receive the concessional tax treatment offered for genuine redundancy payments.

 

How Much Should I Be Paid For Genuine Redundancy?

 
The National Employment Standards include the minimum redundancy payments based on years of service. Some awards or contracts state amounts higher than the minimum standards. An employer may also choose to pay above the minimum rate.

 

Tough Business

 
Whether compulsory or voluntary, genuine or not, redundancy is never good news. The bottom line is that once redundancy has been brought to the table, some people will soon be jobless. This may not sound too bad if you were heading for the exit anyway, but for most people, the effects of redundancy are devastating.

 
Compensatory payments are usually not taxed up to a set limit. What’s included in the payment varies from contract to contract but certain payments on redundancy are not included in the tax free calculation, however, they may be subject to other concessional tax treatments ie. unused annual leave.

 
Voluntary redundancy is the go-to method of dismissal for most businesses. It gives employees a choice and minimises the impact of internal conflict while also allowing the business to maintain a good and clean public image.