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A Guide to Understanding Redundancy in Australia

23/02/2023 by
The Marketing Team
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Have you or someone been made redundant, but you're quite sure what this means? Keep reading this Business Kitz blog to learn more about redundancy in Australia and the various conditions that employers and employees need to be aware of.

What is Redundancy?

Redundancy occurs when an employee loses their job because their position is no longer required by the employer. This can happen due to a variety of reasons, such as technological advancements, changes in market conditions, or if there is a restructuring of the company. Redundancy is not the same as dismissal, which occurs when an employee is terminated due to their own actions or performance.

How does redundancy work in Australia?

Redundancy is regulated by the Fair Work Act 2009 (Cth) and the National Employment Standards (NES) that outlines the minimum standards that employers must meet when terminating employees due to redundancy. These standards include consultation requirements, notice periods and severance payments that can provide a safety net for employees who are made redundant in Australia.

  • Consultations: Employers must consult with affected employees before making any decisions about redundancy. They must inform employees of the reasons for the proposed redundancy, the number of positions that will be affected and the criteria that will be used to select employees for redundancy. Employers must also provide employees with an opportunity to provide feedback and suggest alternatives to redundancy.
  • Notice Periods: The minimum notice period required under the Fair Work Act 2009 is based on the length of service of the employee. For example, employees who have been with the company for less than one year are entitled to one week's notice, while employees who have been with the company for more than five years are entitled to four weeks' notice.
  • Severance Payments: The minimum amount of severance pay is also based on the length of service of the employee. For example, employees who have been with the company for less than one year are entitled to no severance pay, while employees who have been with the company for more than 10 years are entitled to 16 weeks' pay.

How do you calculate Redundancy Pay?

According to the NES, employers are required to pay their employees redundancy pay if they are made redundant, with exception of a few cases. The amount of redundancy pay that an employee is entitled to depends on a number of factors, including their length of service, their age, and the size of the employer's business. It is important to note that some employees may not be entitled to redundancy pay, such as casual employees or employees who have been employed for less than 12 months. However, these employees may still be entitled to notice of termination and can be given a gesture of goodwill.

To start of your calculation, you will need to know the employee's base rate of pay, their length of service, and their age. The amount of redundancy pay that an employee is entitled to is based on the following formula:

Redundancy pay = (base rate of pay x years of service) x (age factor), where age factor is calculated based on the employee's age at the time of redundancy, and ranges from 0.5 for employees under 22 years of age to 1.5 for employees over 45 years of age.

The Fair Work Commission has set out specific rules for calculating redundancy pay, which can be found here.

What are some alternatives to redundancy?

Some alternatives to redundancy might be:

  1. Reducing working hours – Employers can reduce their employees’ working hours to reflect a decrease in demand for their products or services.
  2. Restructuring – Employers can restructure their business to make it more efficient, which may involve changing job roles or creating new ones.
  3. Offering voluntary redundancy – Employers can offer their employees the option to take voluntary redundancy, which allows them to leave the company with a redundancy payment.
  4. Offering redeployment – Employers can offer their redundant employees the option to be redeployed to another role within the company, if one is available.

Legal Advice:

Redundancy is a reality for many workers in Australia. While the legal requirements provide some protection for employees, it is still a challenging experience that can have a significant impact on a person's life. If an employee believes that they have been unfairly dismissed due to redundancy, they may be able to make a claim for unfair dismissal. To do this, they must lodge an application with the Fair Work Commission within 21 days of their dismissal. The Fair Work Commission will then consider the circumstances of the case and make a decision as to whether the dismissal was unfair.

If you require any legal advice or assistance, you can always contact our sister company, Legal Kitz. To arrange a FREE 30 minute consultation with one of their highly experienced solicitors contact us at info@legalkitz.com.au or 1300 988 954. Additionally, you can also check out  Business Kitz's Subscriptions to access our full range of legal, commercial and employment document templates to begin your business with a solid foundation that ensures compliance. 

About
The Marketing Team
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