What is redundancy?

An employer usually makes a role redundant when it's no longer needed for the business. For example, if the business operations change and the duties no longer need to be performed for the business to function.

Once the position is redundant, the person in that role can either be:

  • redeployed (given another job), or
  • retrenched (lose their job and not be offered another)

Watch the following video from the Fair Work Ombudsman (FWO) to learn more about redundancy:

How to know if it's a genuine redundancy

Dismissing an employee doesn't necessarily make it a redundancy. You need to have an accepted reason. If it's not a genuine redundancy, the employee might be able to claim unfair dismissal.

To prove genuine redundancy, you might have to provide evidence such as:

  • a new organisational chart
  • financial records showing the business's losses

Choose positions to make redundant

If your business is in a downturn, think about what skills are least needed now and what you'll need when there's a recovery.

This means reducing or eliminating positions that:

  • contribute the least to safety, compliance or income
  • have skills that are the easiest to replace
  • have duties that you can move to other positions

Fair selection criteria

Use fair selection criteria to work out which positions are to be made redundant – for example, performance and other transparent processes.

This is especially important if individuals on long-term leave (such as parental or long service leave) are being retrenched. Make sure your process for selection is documented and transparent and not based on discriminatory grounds.

Workforce planning tools

Our workforce planning tools can help you look at the skillsets you have in your business and plan ahead:

Check awards or agreements

Check your workplace policies, agreements and employment contracts for things like:

All awards and registered agreements have a consultation process for major changes to the workplace such as redundancies.

If you make any errors here, it could result in unlawful or unfair dismissal claims being made against you later on.

Visit our page on how to dismiss staff properly to find out more.

Communicate with the relevant people

It's important that you keep your staff up to date to help maintain trust and respect.

Read our tips for effective communication and keep a written record of what you discuss in meetings, whether it's with whole of staff or individuals.

Voluntary or compulsory redundancies

Redundancies can be:

  • voluntary – the workers volunteer
  • compulsory – the employer chooses

One benefit of voluntary redundancy is the staff member feels like they've had a level of control in their departure from the company.

Minimum notice period

Legally you must notify the employee in writing and give the employee the correct notice period (or payment in lieu of notice).

If you don't, you might be in breach of:

  • an award
  • a workplace agreement
  • the National Employment Standards (NES)
  • the employee's common law employment contract

Large-scale redundancies

Under the Fair Work Act 2009 and some awards and agreements, if you're making more than 15 people redundant you must:

Prepare redundancy packages

Here is a checklist of all the things you should give to a employee if you're making them redundant:

  • clearly explained entitlements calculated to the last day – list which agreement or award you based the calculations on and when and how you'll make final payments
  • an Employment Separation Certificate that states that employment has ended and for what reason (in case it's requested from Centrelink)
  • a written and accurate statement of service, if the employee requests one
  • the offer of time-off for counseling, training and job search services
  • the offer to end their employment immediately by taking pay in lieu of notice, if this works for both of you
  • a respectful farewell and an offer to hold a farewell event

Support for redundant staff

Jobs Victoria Local Employment Transition Service (LETS) is designed to help businesses and workers through retrenchment and into new opportunities.

To find out more or discuss your options with the LETS team, please contact jobsvictoria.lets@ecodev.vic.gov.au

Calculate employees' final pay

There is no one-size-fits-all solution to working out a staff member's final pay. It can include:

  • outstanding wages, including penalty rates and allowances
  • accrued annual leave and annual leave loading entitlements
  • accrued or pro-rata long service leave (if applicable)
  • redundancy pay entitlements (if applicable)

Get detailed information about redundancy pay, including:

Tax rules for eligible termination payments

Special tax rules apply to some termination payments – such as unused annual leave. Check with the Australian Taxation Office (ATO) or your tax adviser about 'eligible termination payments'.

Keep in mind that unused sick leave isn't usually paid out unless the agreement or award provides for cashing out unused leave – but this isn't common.