Severance Pay in Australia: What You Need to Know as an Employee

As an employee, being let go from your job can be a stressful and uncertain experience. However, in Australia, employees who are terminated due to reasons such as redundancy or restructuring may be entitled to receive severance pay. In this Business Kitz blog post, we’ll explore what severance pay is, how it differs from redundancy pay, and what your entitlements are as an employee.

What is Severance Pay?

Severance pay is a type of payment that an employer may offer to an employee when their employment is terminated due to reasons such as redundancy, restructuring, or the closure of the business. Severance pay is intended to provide financial assistance to employees who have lost their job through no fault of their own and to help them transition into new employment.

Severance pay is not a legal requirement in Australia, which means that whether or not an employee is entitled to receive it depends on the terms of their employment contract and/or any applicable enterprise agreement or award.

How is Severance Pay calculated?

The amount of severance pay an employee is entitled to receive will depend on a number of factors, including the employee’s length of service, their age, and their earnings. In general, the longer an employee has worked for their employer, the higher their severance pay will be.

In Australia, the minimum severance pay entitlement is based on the employee’s length of service and is set out in the National Employment Standards (NES). The NES provides that an employee who has been employed for one year or more is entitled to receive at least one week’s pay for each year of service, up to a maximum of 16 weeks’ pay.

However, it’s important to note that the NES only provides a minimum entitlement, and employees may be entitled to receive a higher amount of severance pay if this is specified in their employment contract or enterprise agreement.

What is the difference between Redundancy Pay and Severance Pay?

Redundancy pay and severance pay are often used interchangeably, but there are some key differences between the two. Redundancy pay is a type of payment that an employee may be entitled to receive when their job is no longer required by their employer. Redundancy pay is a legal entitlement in Australia and is based on the employee’s length of service, their age, and their earnings.

In contrast, severance pay is not a legal entitlement and is generally offered by an employer as a goodwill gesture or in recognition of the employee’s service to the company. Severance pay is typically paid in addition to any redundancy pay to which the employee is entitled.

It’s important to note that redundancy and severance pay are separate entitlements, and an employee may be entitled to receive one or both depending on their circumstances.

What are your entitlements as an Employee?

If you are being made redundant or your employment is being terminated for other reasons, it’s important to understand your entitlements as an employee. Your entitlements will depend on a number of factors, including the terms of your employment contract, any applicable enterprise agreement or award, and the circumstances surrounding your termination.

In general, if you are being made redundant, you may be entitled to receive redundancy pay, notice of termination, and any accrued entitlements such as annual leave and long service leave. If you are not being made redundant but your employment is being terminated for other reasons, you may be entitled to receive severance pay and notice of termination.

If you believe that your employer has not provided you with your entitlements, you may be able to make a claim for unpaid entitlements through the Fair Work Commission or the courts.

Final Thoughts:

While being let go from a job can be a difficult and unsettling experience, it’s important to know your entitlements as an employee. In Australia, severance pay may be available to employees who have lost their job due to reasons such as redundancy or restructuring, but it’s important to note that this is not a legal requirement. The amount of severance pay an employee is entitled to will depend on a number of factors, and employees should refer to their employment contract, enterprise agreement, or award to understand their specific entitlements.

Legal Advice…

Managing a business can be tricky and exhausting, but we are here to make it easier. Check out our Business Kitz Subscription Service today to access our full range of legal, commercial and employment documents to begin your business with a solid foundation that ensures compliance. If you are unsure about how to best protect yourself and your future business, our sister company, Legal Kitz can assist you. Additionally, you can request a FREE consultation with one of their highly experienced solicitors here today, or contact them at info@legalkitz.com.au or 1300 988 954.

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