General News: 13/11/2017

Redundancy is when your position is no longer required within the organisation or your employer becomes bankrupt or insolvent. Unfortunately having your job made redundant is becoming more common due to our forever advancing workplaces. Below is a summary of your entitlements and the taxation implication should this occur to you.

Please note if you are covered by an agreement or specific industry award your redundancy entitlements may vary from the information below.

How much notice are you entitled to?

Besides some minor exemptions, your employer is required to provide you with sufficient notice that your position is being made redundant based on the number of years of service you have provided. If your employer does not provide you with the required notice period, they will need to continue to pay you during the shortfall period. The table below summarises the notice periods required:

Period of Continuous Service Minimum Notice Period
1 year or less 1 week
1 – 3 years 2 week
3 – 5 years 3 week
More than 5 years 4 week

WARNING: Please note that employees over the age of 45 are entitled to an additional week of notice if they have provided over 2 years of continuous service.

What are you entitled to?

The minimum entitlements that could be available to you are summarised in the table below. Your redundancy pay is paid on top of any outstanding leave entitlements:

Period of Continuous Service Redundancy pay
At least 1 year 4 weeks
At least 2 years 6 weeks
At least 3 years 7 weeks
At least 4 years 8 weeks
At least 5 years 10 weeks
At least 6 years 11 weeks
At least 7 years 13 weeks
At least 8 years 14 weeks
At least 10 years 16 weeks
10 or more years 12 weeks

You will be paid at your ordinary base rate of pay which excludes bonuses, loadings, allowances and penalty rates. As can be seen your redundancy pay is reduced from 16 to 12 weeks after 10 years of continuous service to account for the access to long service leave entitlements.

WARNING: Please note that casual employees, apprentices, fixed period employees and employees of a small business are NOT generally entitled to redundancy pay.

What is a small business for redundancy purposes?

If your employer has less than 15 employees at the time notice is provided, then they are not required to pay redundancy amounts to their employees. Casual employees that are not employed on a consistent basis are not included when determining whether your business is a small business.

What are the tax implications of receiving a redundancy payment?

There are generous tax concessions for employees receiving genuine redundancy payments. Part of this payment will be completely tax free with the remainder taxed at concessional rates. To calculate the tax free limit you apply the following formula:

Base Amount + (Service Amount X Years of Service) = Tax Free Limit

The current base amount for the 2018 financial year is $10,155 with the service amount being $5,078 for each year of service.

Depending on your period of service, your long service leave and annual leave entitlements will generally be taxed at a maximum rate of 32%.

Example: Sally’s position has been made redundant. She had provided a period of continuous service of 8 years and was being paid an ordinary rate of $2,000 a week. Sally’s final leave entitlements totalled an 8 weeks when the final pay is due. Sally’s final pay will consist of a genuine redundancy payment of $28,000 and leave entitlements of $16,000. Sally’s redundancy payment will be completely tax free as the $28,000 is under the tax free limit of $50,779 ($10,155 + ($5,078 x 8)). The leave entitlements will form part of Sally’s taxable income but will be concessional taxed at a maximum of 32%.

What if your employer is unable to pay your entitlements? 

In the unfortunate event that a business in liquidation cannot afford to pay its employees entitlements, employees can still receive their entitlements through the Fair Entitlements Guarantee. However this government assistance does not cover all entitlements.