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How to deal with redundancy and retrenchment

Avoid unfair dismissal and help your business through change.

On this page

  • Ensure you meet legal requirements
  • Checklist: create a redundancy package
  • Find support through the transitional period

What is redundancy and retrenchment? 

In simple terms, the employer makes a position redundant when its duties are no longer needed to be done by anyone. Once the position is redundant, the person doing its duties may either be redeployed (i.e. given another job) or retrenched (i.e. lose their job and not be offered another).

Accepted reasons for redundancies

Simply dismissing a member of staff does not necessarily make it a genuine redundancy.  Use the the Fairwork Ombudsman website to check a list of reasons why a position could be made redundant  before you begin the process.

It may be necessary to provide proof, such as a new organisational chart or financial records showing losses to prove genuine redundancy and avoid unfair dismissal claims.

What you need to do

Consider options and plan ahead

When considering which positions to make redundant think about what skills are least needed now and what you'll need when there is a recovery (if you are in a downturn).  This means reducing or eliminating positions that make the least contribution to safety, compliance or income.

Other options are reducing positions with skills easiest to replace or duties you can move to other positions.  To plan ahead, use our workforce planning tools.

Workforce information template (DOCX 36.95 KB)DOCX icon

Workforce action plan (DOCX 29.08 KB)DOCX icon

Use fair selection criteria

This should include performance and other transparent processes. Keep people up to date to maintain trust and respect by communicating properly.  It will help to be a good communicator so use our communication skills for managers.

Check awards and agreements

You should also check any workplace policies and employment contracts for notice periods, payments and the correct procedures. Errors here could mean claims for unlawful or unfair dismissal later.  See how to dismiss staff properly.

Hold consultations with staff and unions

This is compulsory under some awards and agreements and the Fair Work Act 2009 if there are more than 15 people who are made redundant. If you have meetings (staff or individual) keep a written record of what was discussed.

Decide between voluntary or compulsory redundancies

Either the workers volunteer, or the employer chooses who to retrench.  A benefit of voluntary redundancy is that the staff member can feel like they have a level of control in their departure from the company.

Prepare redundancy materials

Use the checklist below to create a proper redundancy pack.  Make sure to farewell employees with respect.

Notify Centrelink

You will need to do this if there are to be more than 15 people being made redundant. Find redundancy information for employers on the Centrelink website.

Give the minimum notice period

This is a legal requirement unless you provide payment in lieu of notice. If you do not advise the employee in writing or you give them an insufficient notice period, this may be a breach of an award, a workplace agreement, the NES or the employee's common law contract.

Payment equal to the wages for the notice period is an alternative to giving an employee notice, usually used if you decide to retrench them immediately, or before the end of the notice period.

If individuals on long-term leave (such as parental or long service leave) are being retrenched, ensure the process for selection is documented and transparent, and not based on discriminatory grounds.

Get help to calculate Long Service Leave.

Checklist: redundancy package

Below is a checklist of all the things you should give to a employee if you are making them redundant.

  1. entitlements calculated to the last day, clearly explained, listing which agreement or award you based the calculations on, when and how you will make final payments 
  2. an Employment Separation Certificate stating that employment has ended and for what reason (if needed for Centrelink) 
  3. a written, accurate, statement of service (if requested)
  4. the offer of time off for counseling, training and job search services. Use the Business in Transition Support program to provide resources to your employees
  5. the offer to end their employment immediately by taking pay in lieu of notice (if mutually convenient) 
  6. a farewell event.

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

Special tax rules apply to some termination payments, e.g. unused annual leave, so check with the Tax Office or your tax adviser about 'eligible termination payments'. Note that unused sick leave is not paid out unless an agreement or award provides for cashing out of unused leave (uncommon).

Business in Transition Support

The Business in Transition Support (BiTS) program is designed to help businesses facing redundancy and retrenchment and can be contacted to organise an information session for employees.  Please email the BiTS team to organise an information session and use the information below to ensure you meet your obligations and provide employees with everything they need.