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When managing a business, sometimes you’re faced with difficult decisions – none more challenging than telling valued employees their roles are no longer required. Navigating redundancy in Australia isn’t just about handing out a letter and a final pay packet. You have legal obligations, including how you handle redundancy notice and when it’s appropriate to provide payment in lieu of notice. Getting this process wrong can expose your business to claims and hurt your reputation.
If you’re wondering what your legal responsibilities are around redundancy in lieu of notice, or how notice periods work for different staff, you’re not alone. Understanding redundancy obligations ensures you remain compliant, avoid costly claims, and treat your employees fairly – even in tough times. In this guide, we’ll demystify redundancy in lieu of notice for Australian employers, highlight the key steps to follow, and cover special considerations such as notice for older employees and how to calculate correct payments. Let’s break it all down so you can proceed with confidence.
Keep reading to make sure your redundancy process is both compliant and compassionate – and to get practical steps you can take right now.
What Is Redundancy In Lieu Of Notice?
When a role is made redundant, Australian employment law ordinarily requires you to give affected employees a written “notice of redundancy” before their employment actually ends. The National Employment Standards (NES) set out minimum notice periods based on how long they’ve worked with you (we’ll cover the details below).
But sometimes, business needs demand that staff leave sooner – for example, if there’s an immediate need to reduce costs or the workplace is changing quickly. In such situations, employers can offer “payment in lieu of notice.” This means paying the employee their full pay as if they’d worked out their required notice period, but finishing their employment immediately. This approach is often called “redundancy in lieu of notice.” It’s perfectly legal, as long as you pay everything the law requires.
Here’s the critical bit: You can’t simply end employment on the spot without either providing the proper notice or paying in lieu of that notice. Failing to comply can result in an unfair dismissal claim or other legal action.
How Do Redundancy Notice Periods Work?
The minimum notice periods for redundancy are set by the NES and will also often appear in employment contracts, registered agreements, or modern awards. If your contract or award provides a longer notice period than the NES, you need to apply the longer period.
- Up to 1 year service: 1 week’s notice
- Over 1 year and up to 3 years: 2 weeks’ notice
- Over 3 years and up to 5 years: 3 weeks’ notice
- Over 5 years: 4 weeks’ notice
- Additional week if 45 or older: Employees aged 45 and above, with at least 2 years’ service, get an extra week’s notice
You can find further information about calculating the correct notice period in our guide to employee entitlements.
Example: Redundancy Notice For Employees Over 45
If an employee is 47 years old and has worked with you for 10 years, their minimum notice is 4 weeks plus 1 additional week for being over 45. So, you must either let them work out this 5 week notice, or pay for 5 weeks’ wages (including any benefits) in lieu of notice.
When Can You Pay Redundancy In Lieu Of Notice?
Paying in lieu of notice is permitted – and sometimes preferred – when:
- It’s impractical for the employee to remain (e.g., business is closing immediately or their presence isn’t needed)
- You want to speed up the business transition or handover, especially in sensitive roles
- The relationship is strained and it’s better for both parties to part ways smoothly
Whether employees work out their notice or receive payment in lieu, the law views both scenarios as compliant when handled properly. You need to provide all final entitlements (including accrued leave, redundancy pay if relevant, and other contractual benefits) at the end of their employment.
Remember, payment in lieu of notice is generally calculated at the employee’s full pay rate for their ordinary hours of work – including all components such as allowances, loadings, and penalty rates. For more details about complex calculation issues, see our article on redundancy entitlements in Australia.
What About Redundancy Pay?
Aside from paying notice (or in lieu of notice), you may also have to pay redundancy pay – a separate entitlement if your business is not considered a “small business employer” under the Fair Work Act (i.e., you employ 15 or more employees).
Redundancy pay is based on years of continuous service, ranging from 4 weeks for just over a year, up to 16 weeks for 9+ years (again, check current NES rates and your specific contracts/awards).
Small business employers (fewer than 15 staff) don’t have to pay redundancy pay, but still must provide the required notice or payment in lieu. There are some exceptions and special rules – if you’re unsure, it’s wise to speak with a legal expert.
How Do You Calculate Redundancy Payment In Lieu Of Notice?
Correct calculation is vital, and should include:
- All wages the employee would have earned during the notice period
- Any loadings, penalties, and regular allowances that apply
- Accrued but unpaid annual leave, long service leave (if eligible), or other entitlements
- Redundancy pay, if your business is required to provide it
Paying the correct amounts is a legal requirement – errors can lead to claims under the Fair Work Act 2009, so be thorough. If you’re not confident, we recommend using a reliable payroll system and getting a legal health check to make sure you’re on track.
What Process Should Employers Follow For Redundancy?
Treating redundancy with clarity and compassion isn’t just good practice – it’s legally required. Here’s how you should proceed:
- Review Your Legal Obligations: Check the applicable awards, enterprise agreements, and contracts. Confirm notice periods, redundancy pay, and procedural requirements.
- Consult & Notify: If you’re making more than 15 employees redundant, or you have a registered agreement, you may need to formally consult with affected employees and their representatives first.
- Written Notice: Provide affected staff with a clear, written redundancy notice which details their last day, the notice period, and their entitlements.
- Offer Payment In Lieu If Needed: If the employee won’t be working out their notice, clearly state that payment in lieu of notice will be made, and specify the amount in writing.
- Pay All Final Entitlements: On or before the final day, pay all required amounts, including ordinary pay for the notice period (if in lieu), redundancy pay (if applicable), and any outstanding leave or benefits.
- Provide Separation Certificate & Records: Give the employee an employment separation certificate, statement of service, and any other required Fair Work Australia or ATO documents.
- Document Everything: Keep clear records of all correspondence, calculations, signed documentation, and record the redundancy process in your files.
For more step-by-step guidance, our article on employee onboarding and offboarding explains best practices for both welcoming and exiting team members.
Are There Risks If I Get Redundancy In Lieu Of Notice Wrong?
Absolutely. Failing to provide the correct redundancy in lieu of notice – or making payment errors – can lead to:
- Unfair dismissal or “wrongful termination” claims
- Orders to pay underpayments, plus penalties and interest
- Damage to your business’s reputation and workplace culture
- Time-consuming disputes with ex-employees or unions
To avoid this, always keep written records, consult the relevant award/contract, and get a legal review of your redundancy letters and calculation sheets before finalising.
How Does Redundancy In Lieu Of Notice Affect Different Employee Types?
All permanent employees (full time and part time) have redundancy rights. However, there are some nuances:
- Casual Employees: Generally not entitled to redundancy pay, or notice, unless their contract says otherwise.
- Employees Over 45: As noted above, they may be owed an extra week’s notice under NES if they’ve completed at least 2 years’ service. You must factor this into any notice or payment in lieu of notice.
- Fixed-Term Contract Employees: Usually not entitled to redundancy pay or notice at the end of their contract, but check for terms that apply if you’re ending the contract early.
If your workforce includes a mix of casual, full time, and older employees, ensure you check which redundancy notice and entitlements are owed for each group.
You can learn more about permanent part-time staff and their rights in our detailed guide.
What Legal Documents Will I Need For Redundancy?
Redundancy isn’t just about verbal conversations – you need strong paperwork to protect both your business and your employees’ rights. Here are the key documents to have:
- Redundancy Letter: Written communication setting out the reason, notice period (or payment in lieu), and final entitlements.
- Employment Contract or Agreement: Lays out each employee’s terms and entitlements. Review these carefully before commencing any redundancy process.
- Calculation Sheet: Itemises pay in lieu of notice, redundancy pay, outstanding leave, and all other entitlements in detail.
- Separation Certificate: Required for Centrelink and to assist your employee in their job search.
- Release Letter or Deed (optional): In some cases, it’s wise to have employees sign a Deed of Release securing mutual agreement that entitlements are settled (get legal advice first).
These documents provide protection for your business and show you’ve acted in good faith. Our employment contracts and redundancy documents suite are tailored to Australian businesses and can help you stay compliant.
What Else Should I Know About Redundancy Compliance?
Making roles redundant isn’t just about paperwork – it’s about ensuring your process is fair, transparent, and respectful. Here are a few tips to help:
- Genuine Redundancy: Jobs must be genuinely redundant – meaning you no longer need the role, not just the person. If you’re simply replacing them with someone else, that’s not a true redundancy and could result in an unfair dismissal claim.
- Consult Early And Honestly: Where required, consult staff about changes, try to redeploy staff elsewhere in your business, and give proper warning before finalising a redundancy.
- Handle With Care: Redundancy is a stressful event for employees – clear, compassionate communication makes a real difference, and can reduce the risk of disputes.
- Update Your Workplace Policies: Use a clear workplace policy to set standards for redundancy, notice periods, and staff exits. This helps ensure consistency and transparency.
- Get Advice For Complex Situations: If you’re unsure about any aspect – including complex calculations, eligibility for redundancy pay, or how to draft compliant redundancy letters – reach out to an employment law expert.
Key Takeaways
- Redundancy in lieu of notice allows you to end employment immediately by paying staff for their notice period instead of requiring them to work it.
- Minimum notice periods are set by law and vary with length of service and age – employees 45 or over with two years’ service get extra notice.
- Large employers must pay redundancy pay alongside payment in lieu of notice if applicable; small businesses may be exempt.
- Accurately calculate all redundancy and notice entitlements – incorrect payments can result in claims and penalties.
- Use strong legal documents, clear communication, and treat employees respectfully to protect your business and minimise risk.
- When in doubt, get advice from a legal expert to confidently navigate the redundancy process.
If you would like a consultation on handling redundancy in lieu of notice, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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