Last updated: June 4th, 2024
Few things are as stressful as organising redundancy agreements in your business. Many ex-employees are eligible for redundancy pay if their job has been deemed redundant.
Australian workplace laws regulate the financial elements of the process, and it’s essential to prepare for these.
Below are our best practices for redundancy packages. Our 6-step checklist will reduce stress and support the affected employees throughout the process.
(Related: Best Outplacement Services In Australia).
What Is A Redundancy?
Redundancy is a corporate term that describes a scenario when someone’s job or role is no longer required.
Australian employers who lose their jobs because of genuine redundancy are eligible for various levels of support. Be sure to check the standards here.
Some reasons a role might become redundant include the following:
- A business restructuring.
- Closed operations or expanding to different territories.
- A need to reduce expenses for large teams.
Who’s Eligible For Redundancy Pay In Australia?
An employee is eligible for redundancy pay in Australia if:
- They were contracted full or part-time.
- They worked for at least a year at a company with 15 or more staff.
Casual and time-based workers (like seasonal workers) are not eligible for termination payments in Australia. Neither are trainees nor apprentices that do not hold a long-term company contract.
Expert Tip.
You could deny a person’s redundancy pay if they are removed from the business because of misconduct. Find out the grounds for dismissal here.
How Much Is Redundancy Pay?
The amount of severance pay due to redundancy depends on how long an employee worked with the company and any pre-existing agreements.
Some scenarios are as follows:
- If someone has worked full-time for one year, they may be entitled to four weeks of severance pay.
- If they have worked for a company for nine years, they may receive 16 weeks of pay.
Important!
Those with ten or more years in a role are eligible for 12 weeks of pay, following a decision made in 2004 by the Australian Industrial Relations Commission.
Expert Tip.
Some companies have different pre-arranged agreements regarding severance pay and redundancy processes. Be sure to check your employees’ contracts for the specifics.
What Is The Redundancy Process In Australia?
In Australia, all employers must communicate and consult with employees when terminating an employment contract due to redundancy.
You should follow the below process to support your employees best:
Step One: Preparation – Determine The Redundancy.
The first step of the redundancy process is to determine where the overlaps in roles occur and how you can best maximise costs within your company budget.
You should:
- Analyse job descriptions and role responsibilities.
- Hold internal audits to gain group feedback on roles.
- Prepare data to present to employees (especially when downsizing) to outline roles under assessment.
- Explain why you are conducting this research – and the risk of potential redundancies.
Consult your upper management to analyse the information and decide which roles will be removed or restructured.
Step Two: Communication – Inform Staff About Redundancies.
An employer must communicate with staff that the redundancy process is commencing, which can look like this:
- A general conversation around redundancy.
- Official announcements in team meetings.
- One-on-one discussions with roles that are under review.
Employees and team leaders must feel adequately supported to prepare for the transition.
To do this, you must act per the Australian Government Fair Work Ombudsman, ensuring that:
- You notify affected employees from the start.
- You communicate necessary information (like timelines).
- Your company aims to minimise the adverse effects of the changes on employees.
- You remain open to ideas and suggestions from the wider team.
Important!
Transparency throughout the redundancy process is the best policy for employers to avoid hefty payouts incurred due to unfair dismissal claims.
Step Three: The Consultation Process.
After an employer has communicated company-wide changes, employers must hold meetings with various staff members at risk of being let go.
Your consultations should involve the following:
- Presenting data and findings around roles.
- Outlining how a loss in positions will change the structure of the team.
- A support person for each employee.
- Planning a follow-up meeting to keep staff in the conversation continually.
Important!
Employees should be allowed to present alternative options to the redundancy. Remember, you should wait for a final decision until you hold initial consultation meetings.
Step Four: Selection – Be Open To New Ideas.
The previous steps should take approximately one month whilst you work out solutions to the redundancy with your upper management team.
When holding discussions:
- Employees should feel safe to express their ideas.
- You should consider ideas presented that retain current employees.
- Consider restructuring roles and moving employees to other teams
Expert Tip.
Failure to offer redeployment for redundancy terminations could be grounds for an unfair dismissal claim. As an employer, you must be genuinely open to realistic solutions to avoid termination.
Step Five: Termination – Issue A Termination Letter.
If, after extensive consulting with your employees and upper management, you are still convinced that a role needs to be made redundant, you should hold a final meeting and provide the employee with a termination letter.
There are many situations where someone may still lose their job due to redundancy, despite offering solutions. Some include:
- Business closure.
- Relocation of the business.
- A staff member’s lack of experience level or qualifications.
- Team or company-wide restructure.
- Disagreements surrounding salary.
For the final meeting, you should ensure a clear agenda is set, supported by company data.
Your termination letter should include the following information:
- An outline of the reasons for redundancy.
- The notice period and their last date of work.
- Details of redundancy payment and other severance payments.
- Next steps/what you need from the employee before they go.
Important!
Losing a job can be highly stressful and upsetting for some. Be sure to offer counselling or additional support services, and respond with empathy for this person’s situation.
Step Six: Payment – Pay Out Redundancy Rates.
Employees can expect to receive their redundancy pay the same way they usually receive paychecks. You and the employee can negotiate this date.
(Related: How To Calculate Employee Turnover Rate Correctly).
Earlier, we mentioned redundancy rates are subject to how long an employee has worked for a company. Some of the redundancy severance rates include the following:
- One year: 4-week salary.
- Two years: 6-week salary.
- Three years: 7-week salary.
- Five years: 10-week salary.
- Seven years: 13-week salary.
- Eight years: 14-week salary.
If you have negotiated separate redundancy packages, you must fulfil these. If you rescind on this agreement, an employee has grounds for legal action and can seek severance compensation.
(Related: How To Build And Sustain A Positive Work Culture).
Frequently Asked Questions About Redundancy.
Learn more about the redundancy process in Australia with these frequently asked questions:
How Long Does The Redundancy Process Take?
The redundancy process in Australia typically takes between 30 to 45 days.
After initial conversations around company changes, staff will meet with management over the next month to develop alternative solutions to contract termination.
Alternatively, companies can pay employees additional packages instead of a timely termination notice.
Will Unions Be Involved?
Unions represent the interests of workers in particular industries or occupations, particularly in times of difficulty.
Some of their key roles include:
- Being able to resolve workplace issues.
- Acting as a voice for employees.
- Negotiating better conditions and pay for employees.
An employer can choose whether to seek additional support from their workplace union, as can you. We recommend keeping conversations internal unless disagreements require mediating.
Can Employees Resign Before Redundancy?
If an employee has worked for your company for more than two or three years, they are likely eligible for redundancy.
They can resign, but they would not be eligible for a redundancy payment. As unlikely as this is, it can and does happen, particularly with aggrieved employees.
What Is An Enterprise Agreement?
An enterprise agreement is an agreement between an employer and a trade union that act on behalf of employees. Sometimes, employees represent themselves.
Important!
Enterprise agreements may give employers greater rights and entitlements than those provided by the National Employment Standards (NES), which is especially beneficial when negotiating redundancy.
What Is The Fair Work Act?
The Fair Work Act 2009 is one of the most important laws that governs the employment relationship in private sector organisations across Australia.
It is the cornerstone of the entire national system of workplace regulations, and employers of all types and sizes should be familiar with it, especially when subject to legal claims.
In a nutshell, it aims to do this by:
- Outlining the conditions of employment.
- Enforcing the Act to ensure compliance.
- Giving provision for the administration of the Act, through the Fair Work Commission and the Fair Work Ombudsman.
- Specifying the rights of employees, employers, and organisations.
Bottom Line About Redundancy Process In Australia.
The redundancy process in Australia can be a stressful time. Following the details in this guide will protect you from false claims of wrongful dismissal and prepare employees for redundancy.
While stressful, you can minimise difficulty by ensuring clear communication and presenting alternative solutions to redundancy throughout the entire process.
Important!
Remember, redundancy should always be a last resort, and all other options should be explored before any termination letters are issued.
Irene
Saranne Segal says:
Great article on handling workplace conflict! One factor I think should deepen the discussion further is the role of cultural differences within workplace conflicts. Many times what seems like a value conflict may actually turn out to be a cultural misunderstanding, especially in very diverse teams. Acknowledging and respecting these cultural nuances can really mean the difference between resolution and disputes and establishing an inclusive environment.
Additionally, it may help to mention the value of psychological safety. When employees feel they can speak up without repercussion, that alone can end low-level conflicts and foster more open channels of communication. This, of course, fits right in with your notes of how respect and empathy are key parts of conflict management. Thanks for illuminating an important topic and sharing your insight.
Steven McConnell says:
Thanks Saranne, you make valid points.