Join our JFM Law team as we answer your FAQs about Redundancy.
Transcript
What is a genuine redundancy?
If an employer no longer requires a job to be performed by anyone because of changes in their operational requirements, they can make that job redundant. This often occurs when an employer restructures or downsizes its business to optimise results.
Is this different from an ordinary dismissal?
Yes. While a redundancy often results in the termination of an employee’s employment, the reason for that is quite different to an ordinary dismissal.
When an employee is dismissed, it’s normally because they have underperformed or engaged in some sort of misconduct. However, when a job is made redundant, it’s because the employer no longer requires that job to be performed by anyone else. This isn’t a reflection on the employee, rather a reflection on the operational requirements of the employer.
Why is redundancy relevant for employers?
If an employee has been employed for a long enough period of time and earn less than the high income threshold specified in the Fair Work Act, they are eligible to make an unfair dismissal claim if they have been dismissed in a manner which is harsh, unjust, or unreasonable. However, if the employee was dismissed following a genuine redundancy, they are no longer eligible to make an unfair dismissal claim. For this reason, it is important for employers who wish to implement redundancies to make sure that they satisfy the strict requirements of the Fair Work Act.
How does redundancy work for a small business employer?
A small business employer is one who employs fewer than 15 employees on a head count basis. Small business employers may terminate employees within 12 months of their commencement date without any risk for an unfair dismissal claim. For larger employers, this is only six months. This longer period allows smaller employers to take on the risk of creating a new role, knowing that they can bring the role to an end if ultimately their businesses doesn’t require it.
Like all other employers, a small business employer must follow the rules set out in the Fair Work Act and other relevant employment awards. However, the expectations of small business employers are watered down in a way, in recognition of the fact that they likely cannot afford dedicated HR managers. Small business employers are also given the benefit of a Small Business Fair Dismissal Code, which provides a checklist of the requirements to follow when dismissing an employee.
Can a small business employer make an employee redundant if they have only worked for a short period of time?
A small business employer can make an employee redundant provided that they otherwise meet the redundancy requirements, which is that the employer doesn’t require the job to be done by anyone anymore and there is no ability to redeploy the employee within the organisation so into another job role.
What are the steps a small business should take when making an employee redundant?
A small business employer has a reduced expectations on them in terms of their HR mechanisms because it’s understood and appreciated that they’re not going to have the facilities and human resources in place to follow a very complex procedure. But they should still comply with the best practise requirements, which is that they should meet with the employee and provide them with some advanced consultation, notice that their job may no longer be required. And also when the termination decision is made and the redundancy is carried out, they should provide them with written notice of termination via redundancy and ensure that they pay them out any entitlements they’re due.
How can a small business employer ensure a successful redundancy process?
A small business employer can ensure a successful redundancy process by following the fair dismissal checklist, which will prompt them to consult with the employee in order to discuss the fact that their role may become redundant, and then also ensure that they provide termination notice via a written letter and, where possible, a statement of service or some other reference to help the employee move into a new role.
What communication strategies should a small business employ when making an employee redundant?
As open communication as possible is the best way to go. For employees this is often uncharted territory, so they really look to their employer to guide the process. Something that they may look to do is have a meeting with the employee up front to let them know that there’s a potential for their job to become redundant. That’s known as consultation, and it is required under most modern awards and it’s also just good practise so that the employee knows what to expect if the decision ultimately was made after that consultation that the role is redundant, then the employee should be sat down and notified of that termination and provided with written notice, notice of termination, as well as letting them know when they can expect to receive their pay out of entitlements that are accrued and payable and termination and providing them with any other assistance that you can.
How does redundancy pay work in Australia?
Redundancy pay depends either on your contractual terms and also the provisions of the Fair Work Act and potentially under some modern awards. There are also some redundancy pay amounts, so the employee needs to make sure that they understand what amount is payable. It’s usually a sliding scale based on the length of service of the employee within the organisation, and employees who have a longer period of service typically are entitled to more redundancy pay on the view that it may take them longer to move into the next role. Employees who are employees are also entitled to termination notice pay, which is more if the employee is over 45 years old.
Are all employees entitled to redundancy pay?
Not all employees are entitled to redundancy pay. Employees of small business employers are not entitled to redundancy pay because small businesses are not expected to be able to afford to pay redundancy pay if a job role is no longer required.
How is redundancy pay calculated?
Redundancy pay is calculated based on length of service, if you’re looking at a calculation under the Fair Work Act, but sometimes certain employment contracts, enterprise agreements, or modern awards provide for a different calculation basis. So, it’s important that the employer looks carefully at what redundancy pay calculation applies to each employee. On termination of employment, by redundancy, the employee is also entitled to be paid out any accrued annual leave, long service leave entitlements, and also obviously any outstanding wages that have accrued at that time. As well, the employee is entitled to notice of termination when they’re being made redundant. Sometimes in a redundancy the employee will be asked to work through the notice of termination, so that might be a couple of weeks up to four weeks notice.
But sometimes employees will decide to terminate and pay notice pay in lieu. A redundancy pay can be taxed more favourably than other types of termination payments. It depends on the employee’s other earnings, but the employee should be aware that it may be more favourably taxed and so if they believe that their job has been made redundant but incorrectly characterised as some other termination, then it may be worth negotiating to have it characterised as redundancy to that receive that favourable tax treatment on their payment.
Can a small business offer redeployment to an employee who has been made redundant?
A small business can offer redeployment. In fact, any business should offer redeployment. If there’s some scope to redeploy the employee, it should be redeployment into another suitable role. So, a role that the employee is suitably skilled for and so that will obviously depend on the particular circumstances, and qualifications, and skill set of the employee. But where possible, redeployment is a great option.
What happens if an employee refuses an offer of redeployment?
Realistically, what you’re looking at when an employee refuses an offer is:
- Whether it was a genuine offer; and
- Whether it was reasonable in the circumstances for them to take it.
If it’s not a reasonable offer, as an employer you can look to applying to the Fair Work Commission and getting a reduction of the redundancy pay that’s required.
How can a small business manage the emotional impact of redundancy on the remaining employees?
When a redundancy happens in the workplace, it can be a lot for the people who are left behind. And because of that, what you’d be really looking at as an employer is putting in place measures, for example counselling, as well as ensuring that there’s upskilling services available to make sure that those remaining employees feel comfortable and secure moving forward with their roles.
When an employee is made redundant, it can be quite an emotional thing. So, one thing that an employer can offer is counselling services. They can also provide things like a letter of service or a reference to that employee leaving so they can find future employment.
Oftentimes in employment contracts you have things like post-employment restraints, so that could include not allowing an employee to work within a certain area or a certain location for a specific period of time. When an employee is made redundant, it might be helpful to negotiate or waive some of those restraints to ensure that that employee is able to find future employment.
Can a small business be sued for making an employee redundant?
So, a small business can be sued if they make an employee redundant, but it’s important first that that employee has worked for a minimum of 12 months, and further, that the redundancy was potentially not genuine or the process wasn’t followed correctly.
What legal risks do small business employers face when making an employee redundant?
When making Employee redundant, what the employer really needs to look at is to make sure that they’ve gone through the correct processes. You know you’ve ticked all the boxes, you’ve gone through the right steps, and that the redundancy is actually a genuine redundancy. For example, your business has restructured and unfortunately that role is no longer available. So, the way that an employer can really make sure that they’re avoiding those risks is:
- Make sure you’re following all the steps, both internal and external, looking at things like the Fair Work Act;
- But then also make sure you are keeping a good record of everything. Document everything that you’re doing; and
- Above all, making sure that you seek legal advice to ensure that you’re following through the correct processes.
Can a small business rehire an employee who has been made redundant?
So, an employer can rehire if someone’s been made redundant because of a genuine redundancy. What they’d be really looking at is:
- What’s the time frame from when that person’s been rehired; and
- Whether that would impact potentially a reduced or no redundancy pay provided.
How long does a small business need to keep records related to redundancy?
So, looking at it from a legal perspective, the minimum that you’d be required to keep these kinds of documents around is 7 years. Really, we would recommend you probably keep them around for a bit longer just to be on the safe side. You’re looking at everything that’s been documenting the process. So that’s things like what were the redundancy pay calculations for example, was there any form of consultation that took place with the employee beforehand and how was the news delivered to them? Was it via a letter, was it during a meeting and was there a written record provided after the fact?
What is the difference between a genuine redundancy and unfair dismissal?
A genuine redundancy is when your workplace is genuinely changed and unfortunately that role is no longer necessary within your employer. If it’s an unfair dismissal, that’s where you’re looking at it was a non-genuine redundancy and potentially they followed incorrect processes. You know the employee hasn’t been consulted, or perhaps there was underlying reasons behind why that redundancy actually occurred, or whether it was actually a termination.
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The information contained in this post is current at the date of publishing – 13 October 2025.
