Redundancy, re-employment and tax issues

Q&A

Redundancy, re-employment and tax issues

We recently made some employees redundant, however due to an employee's resignation we would like to re-employ one of the redundant employees. We have a number of questions on this matter.

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The following question sent to WorkplaceInfo raised this issue.
 
We recently made some employees redundant, however due to an employee's resignation we would like to re-employ one of the redundant employees. Our accountant has advised us that this may jeopardise the employee's entitlement to redundancy payments, since the employee will be re-employed within one month of the date of redundancy. We have a number of questions on this matter:
  • Can we re-employ a person who was made redundant?
  • Is the previously redundant employee required to reimburse the company the redundancy pay previously paid, if re-employed?
  • Is there a period of time that must elapse before an employee can be re-employed by the same company, for the original termination to be deemed a redundancy?
There are two separate issues involved in this scenario, the employment issue and the taxation issue.
 
Employment issue
 
With respect to employment law, the employee is entitled to redundancy payments related to the previous termination, despite being subsequently re-employed by the same employer.
 
This is because redundancy occurs at a particular moment — indeed it is the employee's position that becomes redundant, not the employee.
 
The redundancy provisions in pre-WorkChoices industrial instruments do not usually prevent the re-employment of an employee previously made redundant, nor is there usually a provision disqualifying redundancy pay if the employee is re-employed within a particular period of time.
 
Therefore, an employee re-employed at any future date would not be required to forfeit their redundancy pay.
 
Taxation issue
 
The issue with respect to taxation relates to whether the redundancy pay is a 'bona fide' redundancy payment.
 
This determines whether the payment receives a concessional taxation rate compared to other eligible termination payments. This may have been the issue that influenced the accountant's advice to the company.
 
Example
 
An agreement at the time of termination to later employ the employee (in any capacity) prevents a payment from being regarded as a bona fide redundancy payment.
 
Likewise, it would be unacceptable for the employer to agree, at the time of termination, to contract with a consulting company established by the employee where, under the contract, the consulting company will provide the employee's services as a contractor to the employee.
 
The employer should seek appropriate accountancy advice on the taxation issues in each particular case.
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