When making an employee redundant, it is important you understand what you must do as a small business owner.

As a small business owner, you may not have to pay redundancy. You are, however, required to give notice. 

Don’t know where to start? Here’s what you need to know. 

Redundancy 

Redundancy occurs when: 

  • An employee’s job is no longer needed, or
  • The business the employee was working for becomes bankrupt or insolvent

This may be as a result of new technology, a reduced rate of business growth or a business restructure. 

Genuine Redundancy 

When making an employee redundant, it must be genuine. This ensures that your employee can not make a claim for unfair dismissal. 

A genuine redundancy occurs: 

  • When the employee’s job doesn’t need to be done by anyone once they have been made redundant
  • When the employer has followed any relevant award requirements and/or the requirements made in an agreement between the employee and employer (more on this later)

A redundancy is not genuine in any of the following scenarios: 

  • The job you have made redundant still needs to be done by someone
  • The relevant award or agreement requirements haven’t been followed 
  • The employee you have made redundant could have reasonably been moved to another job within your small business

Check out our article to learn more about redundancy generally. 

Do Small Businesses Have To Pay Redundancy Pay?

Many small businesses do not have to pay redundancy when making an employee redundant. 

Your business is considered a ‘small business’ under the Fair Work Act if you have fewer than 15 employees. 

Although these small businesses do not have to pay redundancy, certain industry modern awards may create an obligation. 

These include: 

For example, the Textile, Clothing, Footwear and Associated Industries Award 2010 requires that small business owners pay the following redundancy pay: 

Employee’s Period of Continuous Service With the Employer on Termination Redundancy Pay Period
Less than 1 yearNil
At least 1 year but less than 2 years4 weeks
At least 2 years but less than 3 years6 weeks
At least 3 years but less than 4 years7 weeks

Fair Work Australia’s Redundancy Pay Calculator can help you determine if you are required to pay redundancy when making your employee redundant. 

Once you have determined that your business is a small business and not required to pay redundancy, you must still ensure: 

  1. That it is a genuine redundancy, and 
  2. That the redundant employee receives all unpaid or owed wages and, where applicable, accrued long service/annual leave

Other instances where you may not have to pay redundancy include: 

  • Employees who have worked in your business for less than 12 months
  • Employees employed only for:
    • A specific period of time
    • A specific task or project 
    • A particular season
  • Employees terminated because of serious misconduct
  • Casual employees 
  • Trainees employed only for the length of the training agreement

Redundancy Notice Period 

Generally, you will be required to give your employee notice when making them redundant.

National employment standards establish the minimum notice period an employer must give to an employee when making them redundant: 

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

NB: An additional week of notice is afforded to employees over 45 years old who have completed a two year period of continuous service with your business.

Although you will generally have to provide notice to your employees, you may not have to in certain situations. These include when: 

  • You have paid the employee’s full pay rate as if they had worked the minimum notice period.
  • The employee is a casual employee.
  • The employee has been employed only for a specific time, task or season.
  • The employee has been terminated because of serious misconduct.
  • The employee is working on a daily hire basis in the building and construction industry or meat industry.

Check out Fair Work Australia’s Notice and Redundancy Calculator to help figure out exactly how much notice you will have to give your employee when making them redundant. 

How Do I Provide Notice?

If you are required to provide notice to the employee you are making redundant, it must be provided in writing. 

It is vital that the employee receives the notice of termination. Ways in which you may deliver notice include: 

  • Personally 
  • Leaving it at the employees last known address or
  • Sending by pre-paid post to the employees last known address

Any Questions?

Making an employee redundant can be a challenging process for all involved. We understand the difficulties you may face when having to let an employee go. Ensuring that you take the correct steps when doing so is vital in making the process as smooth as possible. 

If you have any further questions regarding making an employee redundant, we’re here to help! Reach out to our team today at team@sprintlaw.com.au or give us a call on 1800 730 617.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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