Employers' legal obligations for redundancy can be difficult to navigate.
Redundancies are a common part of any business restructure, occurring when certain roles are no longer necessary to an operation.
Our Employment Law team outlines the best ways to approach redundancies under the Fair Work Act 2009 (FW Act) and explore employers' legal redundancy requirements and rights.
What is a redundancy?
Redundancy arises from an employer’s decision to apply significant changes in their business due to a shift in operational requirements.
The Fair Work Ombudsman (FWO) states: "Redundancy is when a business no longer needs an employee’s role to be done by anyone. When an employer makes an employee’s job redundant, they may need to pay the employee severance or redundancy pay."
Redundancy may also occur when an employer becomes insolvent or bankrupt.
Redundancy pay calculator: how much do employers need to pay?
Redundancy pay in Australia depends on an employee’s length of service and their regular pay rate, as outlined under the FW Act.
According to the National Employment Standards, employers must follow specific redundancy provisions, including consultation and severance pay requirements.
Use the Fair Work Ombudsman’s redundancy calculator to estimate payouts.
More information on employers' obligations, the redundancy process and notice requirements can be found here.
More reading
Workplace toolkits and guides
Workplace training
Do you need a redundancy communications plan?
Good communication and consultation aren't just best practice, but mandatory requirements of the redundancy process.
Businesses need to meet the required consultation and notice periods and keep records as proof as they go.
Which businesses must pay redundancy in Australia? Eligibility and exemptions
If your business has 15 or more employees and the relevant workers have been employed for 12 months or more, a redundancy payment most likely applies. Some businesses with under 15 employees, referred to as a “small business employer” may also be required to make a redundancy payment.
The Fair Work Ombudsman lists the circumstances where redundancy payments may not apply, including where an employee is terminated for misconduct.
Employers can apply to the FWO to reduce a redundancy payment by filling out a form on the Ombusdman’s website called F45A.
If a company has found other suitable employment for the worker or if it cannot afford a redundancy payment, the Ombudsman may make allowances.
The FWO will take into consideration the circumstances of the redundancy and potentially reduce the amount of severance to be paid – down to nothing.
Normally, this is just a percentage base reduction based on if the person has found other work and the specifics of that situation.
If a person’s primary role was made redundant but they were given an opportunity to redeploy into another role within the business but did not take it, the FWO may revise down their redundancy payment.
It is vital that written records of these circumstances are documented by a business for consideration by the FWO.
FAQs - answered by our experts
Here, we answer these questions:
- What are our obligations regarding redundancies?
- Do we need to consider redeployment opportunities?
- If we take steps to mitigate termination, do we still have to pay redundancy?
- Are there any exemptions to paying redundancy?
Here, we answer these questions:
- What process should employers follow when implementing redundancies?
- How do I calculate a redundancy payment?
- If our business has gone through a restructure, and as a result we are needing to reduce the number of employees in a specific role, how do we determine which employees to make redundant?
- If the business is requiring an employee to decrease their working hours, is this classified as a redundancy?
Other considerations
You may be able to renegotiate staff contracts, rather than reduce your workforce, to reduce costs.
However, if you do scale back your employee’ hours you will need the consent of each employee first or it may be considered a redundancy.
In a Federal Court decision from 2020, an employee was found to be entitled to a redundancy payment because her hours of work were reduced without agreement, even though she continued to work for the employer.
Redundancy can be complex. If you need support navigating redundancy in your business, contact our Employment Law team at [email protected] or (08) 9365 7746.
Our Employee Relations Helpline can also offer timely, expert support on 9365 7660 or at [email protected].
CCIWA Members receive a discounted rate on our legal services and free unlimited use of our Employee Relations Helpline. Not a Member? No problem, our team can support you, too!
