Guide to Redundancy Pay: Everything You Need To Know

Topics: Reading time: 3 minutes

Sometimes employers need to shift positions around or change workplace roles in a big way. With the rise of technology and automation, many jobs that existed a few years ago no longer are a normal part of many workplaces. 

If you’re an employee and your job is removed and you find yourself unemployed, you’re likely to be eligible for what’s known as redundancy pay. Redundancy payments are any payments made to an employee who has been dismissed because the job itself has been abolished. 

How much you’ll receive as part of your redundancy pay depends on a number of factors, so it’s important to understand how this type of arrangement works so you can take full advantage of what’s rightfully yours. In this guide, we’ll explain everything you need to know about redundancy pay. 

What Is Included in a Redundancy Payment?

First, let’s discuss what exactly is included in a redundancy payment. Many are surprised to learn that things like salary, wages, lump sum payments of unused annual leave, or payments made in lieu of superannuation benefits are not redundancy payments. 

Redundancy pay can include any of the following:

  • Payment in lieu of notice
  • Severance pay (usually for each year of service)
  • A gratuity (also known as a golden handshake)

In Australia, the protections for Redundancy Pay are secured under the Fair Work Act. This act says that employers must provide written notice based on how long the employee has worked there. If the employee is in his or her first year, only one week’s notice is requested. For those who have worked in a position for 5 years, there needs to be 5 weeks’ notice, and so on. 

Employers can choose not to provide this notice, but they’ll need to make a payment to the employee at the full rate of pay for this amount of expected time. Most employers also pay any accrued annual leave and benefits, though this isn’t required. 

How Much Severance Pay Is Expected?

Most employers have their own rules for just how much severage pay is expected in a redundancy termination, but there are minimum payments that are required under law. These include:

  • 1-2 years in the position: 4 weeks pay
  • 4-5 years in the position: 8 weeks pay
  • 9-10 years in the position: 16 weeks pay

You can use a redundancy pay calculator to better understand just how much you can expect to receive from this type of termination. Usually, the calculation goes Base Rate of Pay x Redundancy Pay Period = Redundancy Pay, based on the numbers listed above. 

Negotiating Your Pay and Benefits

As an employee, you actually have more power than you might think. While nobody wants to face the reality of their position no longer existing, you do have options. You can negotiate the terms of your redundancy pay with your current employer to achieve the best-case scenario for your situation. 

There are many things that might not be included in your current redundancy package such as:

  • Income protection insurance
  • Company cars
  • Company or professional memberships
  • Mobile phones

You might be able to work out the cost of these things and negotiate compensation for their loss. Working with a specialist can help you better understand what type of actions you can take during this difficult situation. 

How to Adapt to Your New Income

Once you’ve received your redundancy payment, you might be unsure what to do with this money. Depending on how long you’ve been with your company, you might find yourself with a large chunk of cash. 

However, it’s important to remember that you have no ongoing income since you no longer have your position. You’ll need to not only decide what to do with your payment, but also how to proceed with your finances moving forward. 

Unless you already have a new position lined up, creating a new budget should be your top priority. It will be up to you to manage your bills and debts even if it takes a while to find a new employment opportunities. In addition, if you have a redundancy package equal to 12 weeks pay or more, you will temporarily no longer be eligible for any Centrelink payments

Luckily, eligible termination payments up to a certain amount (this amount changes yearly) is tax-free. Any amounts over these tax-free levels are treated as taxable income. You’ll need to adjust to this new normal as you seek or start a new position. 

Know What to Expect From Redundancy Pay

If your job is terminated because of redundancy, you’re eligible for a lot of benefits. It’s normal to be intimidated by this transition, but remember that you have options. You can negotiate with your employer to decide on a redundancy payment that’s fair and gives you the foundation to find a new role. 

For help managing your new income, contact the friendly professionals at Debt Busters. We’re here to help you through every step of this process, whether you need to negotiate a higher redundancy package or update your budget. It’s never too early to take action. Give us a call today on 1300 368 322 to take charge of your financial future.

Speak to us today

Debt Busters is an Australian owned business which was founded in 2005 - since then we have been able to help thousands regain financial control.

Debt Busters prides itself on providing a dedicated Client Service Manager to work closer with you and provide a higher level of customised service about your situation.