redundancy pay

The amount of redundancy pay to be paid is based on the employee’s length of service. There are circumstances where redundancy pay can be reduced, and there are also tax considerations.

Redundancy pay is worked out at the base rate of ordinary hours worked, and does not include overtime or penalty rates, loadings, monetary allowances, or incentive-based payments and bonuses.

Employees must have worked with the company for at least one year before they are entitled to redundancy pay. Redundancy pay is based on their years of continuous employment with the company, up to a maximum amount of 16 weeks’ worth of pay.

To calculate the amount of notice required and the redundancy amount to pay, visit the Fair Work Ombudsman’s website

reducing redundancy pay

An employer can apply to the FWC to reduce the amount of redundancy pay if:

  • the employer was able to find other acceptable employment for the employee
  • the employer cannot afford the full amount.

Redundancy pay does not apply to all employees. The following are not entitled to redundancy pay:

  • employees who have worked at the company for less than 12 months
  • employees who have been fired for serious misconduct
  • casual employees
  • apprentices 
  • trainees who are only engaged for the length of training
  • employees who are only employed for a stated period of time, or for a specific task or project
  • employees of a small business (fewer than 15 employees).
  • Tax considerations

Genuine redundancy payments are tax-free up to a limit based on the employee’s years with the company. It is important that employers check to see if redundancy payments are tax-free, or if they need to withhold payments under the PAYG withholding scheme.

The tax-free limit for 2018-2019 is $10,399 (base amount) plus $5,200 (service amount) for each year of completed service with the company. 

The tax-free limit is calculated by multiplying the service amount by the years worked at the company, then add the base amount. 

The Australian Tax Office gives more details of the tax-free limits on its website

bankruptcy and liquidation

When a business becomes insolvent or goes bankrupt, employers may not be able to pay employee wages and entitlements. Under these circumstances, employees can go through the Fair Entitlements Guarantee (FEG) to assist with recovering the following:

  • wages (up to 13 weeks of unpaid wages)
  • annual leave
  • long service leave
  • redundancy pay (up to four weeks per full year worked)
  • payment in lieu of notice of termination (maximum of five weeks).

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