Entitlement to redundancy pay
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From 1 January 2010, the National Employment Standards (NES) replace the non pay rate provisions of the Australian Fair Pay and Conditions Standard (the Standard). Under the NES, the rules relating to redundancy and redundancy pay are modified.
Redundancy under the NES happens when an employer either:
- decides they no longer want an employee’s job to be done by anyone and terminates their employment (except in cases of ordinary and customary turnover of labour)
- becomes insolvent or bankrupt.
Note: What constitutes ordinary and customary turnover of labour will depend on the relevant circumstances.
An employee may be entitled to redundancy or severance pay if each of the following applies:
- a workplace instrument (e.g. an award or agreement) that applies to the employee contains redundancy pay entitlements
- the employee works for an employer that employs 15 or more employees (some exceptions apply)
- a permanent employee has more than 12 months continuous service with an employer (some exceptions apply).
If an agreement that included redundancy provisions was terminated in a certain way less than 2 years ago and the employees covered by that agreement aren’t covered by a new agreement, the old redundancy provisions may still apply.
There is currently no Commonwealth statutory requirement in Australia to make a redundancy or severance payment.
However, from 1 January 2010 all employees working under Commonwealth workplace laws who:
- have more than 12 months continuous service and
- work for an employer that employs 15 or more employees
May be entitled to redundancy or severance payments (to a maximum of 16 weeks pay) under the National Employment Standards (NES).
An employer may be also liable to pay redundancy pay under certain preserved redundancy provisions.
The amount of redundancy pay under the NES equals the total amount payable to the employee for the redundancy pay period. This is worked out using the table below, at the employee’s ‘base rate of pay’ for his or her ordinary hours of work.
An employee’s base rate of pay (other than a pieceworker) is the rate of pay payable to an employee for his or her ordinary hours of work, but not including any of the following:
- incentive-based payments and bonuses
- monetary allowances
- overtime or penalty rates
- any other separately identifiable amounts.
|Employee’s period of continuous service with the employer on termination||Redundancy pay period|
|At least||but less than|
|1 year||2 years||4 weeks|
|2 years||3 years||6 weeks|
|3 years||4 years||7 weeks|
|4 years||5 years||8 weeks|
|5 years||6 years||10 weeks|
|6 years||7 years||11 weeks|
|7 years||8 years||13 weeks|
|8 years||9 years||14 weeks|
|9 years||10 years||16 weeks|
|10 years||12 weeks|
Note: long service leave entitlements provide the rationale for diminishing the redundancy pay entitlement for employees who have a period of 10 years’ continuous service or greater.
It is possible for an employer to apply to Fair Work Australia for a determination reducing their liability to pay redundancy pay to a specified amount (that may be nil), if Fair Work Australia considers appropriate.
The employer may apply for the determination if an employee is entitled to redundancy pay and the employer finds other acceptable alternative employment or cannot pay the amount.
If a dismissal is a genuine redundancy it will not be an unfair dismissal.
Under Commonwealth workplace laws, a person’s dismissal is a 'genuine redundancy' if:
- your employer no longer needs the person’s job to be done by anyone because of changes in the operational requirements of the business
- your employer followed any consultation requirements in the modern award, pre-modern award or agreement that applies.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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