Redundancy pay & NES

The NES provides a statutory entitlement to redundancy pay for all full-time and part-time employees employed by a company that is not a small business, including award/agreement-free employees. This commentary explains the entitlement and its payment

This commentary is based on writings by Paul Munro, IR consultant. 
 
National Standards
 
Prior to the commencement of the National Employment Standards (NES) on 1 January 2010 under the Fair Work Act (FWAct), redundancy pay previously had only been a legal entitlement for award/agreement-covered employees. However, the NES provides a statutory entitlement to redundancy pay for all full-time and part-time employees employed by a company that is not a small business, including award/agreement-free employees.
 
What is a redundancy?
 
The following definition applies for the purposes of redundancy pay under the NES:
Redundancy occurs if the employee’s employment is terminated by the employer because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour, or because of the insolvency or bankruptcy of the business.
Employees excluded from redundancy pay
 
The NES redundancy pay scale does not apply to an employee’s termination of employment if, immediately before the time of the termination due to redundancy, or at the time when the person was given notice of the termination:
  • the employer employs fewer than 15 employees (excluding casuals)
  • an employee has less than 12 months continuous service with the employer
  • the person is a casual employee
  • the employee is terminated because of serious misconduct
  • the employee is employed for a specified task, or a specified period of time, or a specified season
  • a training arrangement applies to the employee and his/her employment is for a specified period of time, or limited to the period of the training arrangement
  • the employee is an apprentice
  • an industry-specific redundancy scheme in a modern award applies to the employee or is incorporated into an enterprise agreement which applies to the employee.
NES – amount of redundancy pay
 
The NES prescribes a scale of redundancy or severance payments based on an eligible employee’s years of continuous service with the employer and the employee’s age. The scale of payments is calculated based on the following scale:
 

Less than one year’s continuous service

Nil

At least 1 year but less than 2 years continuous service

4 weeks pay

At least 2 years but less than 3 years continuous service

6 weeks pay

At least 3 years but less than 4 years continuous service

7 weeks pay

At least 4 years but less than 5 years continuous service

8 weeks pay

At least 5 years but less than 6 years continuous service

10 weeks pay

At least 6 years but less than 7 years continuous service

11 weeks pay

At least 7 years but less than 8 years continuous service

13 weeks pay

At least 8 years but less than 9 years continuous service

14 weeks pay

At least 9 years but less than 10 years continuous service

16 weeks pay

At least 10 years continuous service

12 weeks pay*

 
* The reason the amount of redundancy pay entitlement is reduced after 10 years continuous service is that the government assumes that the employee is also entitled to long service leave pay at this point.
 
The national workplace relations tribunal, the Fair Work Commission (FWC), is able to reduce the amount of redundancy pay (which may be nil) where the employer obtains other acceptable employmentfor the employee, or if the employer cannot pay the amount which is legally payable. The employer must apply to the FWC for this reduction.
 
Ordinary pay
 
The amount of redundancy pay equals the employee’s ‘base rate of pay’ for his or her ordinary weekly hours of work.
 
The base rate of pay is the employee’s ordinary weekly rate of pay for their ordinary hours of work, excluding incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates, any other separately identifiable amounts.
 
Note that a modern award may continue to recognise more beneficial redundancy provisions that were provided prior to the commencement of the modern award. For example, providing that entitlements are calculated on an ordinary rate of pay rather than the lesser ‘base rate of pay’. Most modern awards contain a transitional provision regarding the scale of redundancy payments under a NAPSA that are more beneficial to an employee than the NES. The transitional provision ceased to operate on 31 December 2014.
 
Continuous service
 
The NES recognises an employee’s service with their employer prior to 1 January 2010, provided the terms of an employee’s contract of employment included an entitlement to redundancy pay.
 
New provision for award/agreement-free employees
 
Where an employee’s contract of employment does not include an entitlement to redundancy pay, service for the purposes of calculating redundancy pay under the NES commences from 1 January 2010. This mainly affects award/agreement-free employees who did not have a previous entitlement to redundancy pay under the conditions of their contract of employment.
 
Excluded service
 
Redundancy pay is based on the number of years of continuous service the employee has completed with their employer. The FWAct states that all employment with the employer counts as service except for the following absences:
  • any period of unauthorised leave
  • any period of unpaid leave or authorised unpaid absence, other than community service leave and a period of employee stand-down (the latter means when the employer ceases paying wages to employees for whom it has no work, until work is again available, but the employee remains employed by the employer).
This means that any paid absence from work, such as annual leave, personal/carer’s leave (including compassionate leave), a public holiday, jury service and long service leave counts as service for the purposes of calculating redundancy pay. However, unpaid absences, such as unpaid parental leave, leave without pay granted by the employer, unpaid carer’s leave or unpaid compassionate leave, do not count as service and are excluded from any calculation of continuous service.
 
Transfer of employment
 
Recognition of service with the first employer does not apply with respect to redundancy pay under the NES where the transfer is between non-associated entities and if the second employer decides not to recognise the employee’s service with the first employer. Where a transfer of employment occurs, a transferring employee is not entitled to redundancy pay at the time of the transfer of employment where employment with the second employer is ongoing.
 
The NES also provides that an employee is not entitled to redundancy pay if:
  • the employee rejects an offer of employment made by another employer that is on terms and conditions substantially similar to, and, considered on an overall basis, no less favourable than the terms and conditions of employment with the first employer immediately before the termination, and recognises the employee’s service with the first employer; and
  • had the employee accepted the offer, his/her employment would have been transferred.
The FWC may order the first employer to pay an amount of redundancy pay if it is satisfied the offer of employment with the second employer operates unfairly to the employee.
 
Notice and redundancy pay
 
While an employee’s payment in lieu of notice and redundancy pay are often treated together by an employer to arrive at a ‘global’ redundancy package, the separate nature and purpose of the two entitlements remains. Under the FWAct and the NES, an employer is required to provide both the appropriate minimum period of notice of termination to an employee as well as payment of the relevant redundancy pay when an employee’s position becomes redundant. The two entitlements are mutually exclusive and must be treated and recognised separately.
 
A period of notice is to give an employee the opportunity to adjust to the change in circumstances which is to occur and to seek other employment. Redundancy pay is to provide the employee with sufficient remuneration to cover an anticipated period of unemployment.
 
 
 

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