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How to deal with redundancy and retrenchment

Avoid unfair dismissal and help your business through change

On this page

  • Make sure you know and understand all the 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 required to be done by anyone. Once the position is redundant, the person doing its duties may either be redeployed (given another job) or retrenched (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.

To prove genuine redundancy and avoid unfair dismissal claims, you might have to provide evidence such as a new organisational chart, or financial records showing the business's losses.

Visit the Fair Work Ombudsman website to check a list of reasons why a position could be made redundant before you begin the process.

What you need to do

Consider options and plan ahead

If your business is in a downturn, and you're considering which positions to make redundant, 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 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.

Use our workforce planning tools below to plan ahead:

Workforce information template (DOCX 36.95 KB)DOCX icon

Workforce action plan (DOCX 26.47 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.

Visit our page on communication skills for managers to find out what makes an effective communicator.

Check awards and agreements

You should also check any workplace policies and employment contracts for notice periods, payments and the correct procedures.

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

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

Hold consultations with staff and unions

If there are more than 15 people made redundant, under some awards and agreements, and the Fair Work Act 2009, consultations with your staff and relevant unions is compulsory.

When you do hold meetings with whole of staff or with individuals 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.

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

Prepare redundancy materials

Use the checklist below to create a proper redundancy pack. But first, make sure you:

Give the minimum notice period

This is a legal requirement – unless you provide payment in lieu of notice.

If you don't advise the employee in writing – or hand them an insufficient notice period – this may be a breach of:

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

Payment equal to the wages for the notice period is an alternative to giving an employee notice, and is generally 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.

Visit our section on long service leave to help you understand your responsibilities.

Contact Centrelink

If there are more than 15 people being made redundant, you'll need to contact Centrelink .

Visit the Centrelink website to find out more information about redundancy for employers.

Checklist: redundancy package

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

  1. Entitlements calculated to the last day — clearly explained listing which agreement or award you based the calculations on, and when and how you'll make final payments
  2. An Employment Separation Certificate stating that employment has ended — and for what reason in case it's requested from Centrelink
  3. A written, accurate, statement of service — if requested
  4. The offer of time-off for counseling, training and job search services — Jobs Victoria Workers in Transition (WiT) provides information, tools and resources to help both businesses and workers through retrenchment processes and into new opportunities
  5. The offer to end their employment immediately by taking pay in lieu of notice — if mutually convenient
  6. Farewell employees with respect and hold 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 — 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 is not paid out unless an agreement or award provides for cashing out of unused leave (uncommon).

Jobs Victoria Workers in Transition

Jobs Victoria Workers in Transition (WiT) program is designed to help businesses and workers facing retrenchment and can be contacted to organise an information session for employees.

For more information, please see the Jobs Victoria Workers in Transition page.