Redundancy: Process and Payments Getting It Right
Rosalie Cattermole, Senior Associate
Claire Tuffield, Solicitor
Definition
Redundancy
– Redundancy occurs when an employer no longer requires anyone
to perform a particular job due to changes in the operational
requirements of its business.
“Genuine Redundancy”? Three Steps
– Step one: the employee is terminated because the employer no
longer requires anyone to do the job due to changes in the
operational requirements of the employer’s enterprise;
– Step two: the employer has complied with any consultation
requirements outlined in an applicable modern award or enterprise
agreement; and
– Step three: it was not reasonable (in all the circumstances) for the
employer to redeploy the employee within their own enterprise or
that of an associated entity.
Step 1: Operational Changes
Restructuring
Downsizing
Closing down
Outsourcing
Step 2: Consultation
The employer must comply with any consultation
requirements outlined in an applicable modern
award or enterprise agreement.
Meet with affected employees to provide information
and discuss:
– Measures to avert or minimise redundancies; and
– Measures to lessen the adverse effects of any redundancies
eg, outplacement support.
Step 2: Consultation continued...
Step 1
– Provide affected employees with written notification of the changes
that are proposed.
Step 2
– Discuss the operational changes with affected employees (and
their representatives).
Step 3
– Listen to affected employees, consider what they have to say and
respond.
** FAILURE TO CONSULT?
NOT A GENUINE REDUNDANCY/ CIVIL PENALTIES **
Step 3: Redeployment
It is not reasonable (in all the circumstances) for the
employer to redeploy the employee within their own
enterprise or that of an associated entity.
Redeployment means:
– offering a redundant employee continued employment in another
role as an alternative to dismissal.
Step 3: Redeployment continued...
Is redeployment reasonable?
– Is there a position available?
– Does the employee have skills and qualifications required?
– Will retraining be required?
– Does the location of the job make it reasonable?
– Will the employee earn less?
Step 3: Redeployment Checklist
– Is there a position available within your business or with the
enterprise or an associated entity?
– If the available position is in an associated entity, do you have the
power to offer it to the employee?
– Does the employee have the skills and competencies required to
perform the role to required standard, either immediately or with a
reasonable period of retraining (having regard to the nature of the
position, the qualifications required to perform the job and the
employee’s qualifications and experience)?
Step 3: Redeployment Checklist
continued...
– Does the location of the job in relation to the employee’s residence
make redeployment feasible, i.e. the employee is unlikely to accept
the redeployment offer without some compensation, e.g. for the
additional travel and it would be unreasonable for you to provide
that compensation?
– Will the employee earn less in the vacant role such that
redeployment is not feasible, i.e. the employee is unlikely to accept
the lesser remuneration without some form of compensation, and it
would be unreasonable for you to provide that compensation?
Making more than 15 positions
redundant?
Notify Centrelink
Notify and consult with Unions
Redundancy Pay
Compensation for loss of benefits the affected
employees would otherwise accrue as a result of
long service:
Period of Service
Redundancy Pay
1-2 years
4 weeks
2-3 years
6 weeks
3-4 years
7 weeks
4-5 years
8 weeks
5-6 years
10 weeks
6-7 years
11 weeks
7-8 years
13 weeks
8-9 years
14 weeks
9-10 years
16 weeks
More than 10 years
12 weeks
Service prior to 1 January 2010
Service prior to 1 January 2010
– Service prior to 1 January 2010 will only count for accruing
redundancy pay if the employee’s terms and conditions of
employment (under an award, agreement or employment contract)
immediately before 1 January 2010 provided an entitlement to
redundancy pay.
Other Payments
Other payments:
– Notice (in lieu of actual notice) either in accordance with their
agreement or the NES, whichever is greatest;
– Untaken annual leave;
– Untaken long service leave payment (subject to minimum service
requirements); and
– Any other monies due under their agreement.
When you may not have to pay
Redundancy Pay
You redeploy the employee;
The employee voluntarily resigns;
It is a transfer of business situation;
You are a small business employer; or
The redundancy is caused by insolvency.
Taxation of Redundancy Pay
The good GREAT news:
– a “genuine redundancy payment” for tax purposes (GRP) is tax free
up to a limit worked out under the tax rules.
Both the employer and employee need to know
whether all or part of a purported GRP is actually a
GRP:
– the employer particularly needs to know if it is required to withhold
from the payment, and if so, how much to withhold; and
– the penalty for failing to withhold is equal to the amount the payer
failed to withhold (subject to remission).
The basics: what is a GRP
Subject to the cap under the tax rules:
1.
A payment received in consequence of the termination of an
employee’s employment
– follows from and would not be made ‘but for’ the termination of
employment.
What is a GRP?
2.
The employee is dismissed from employment
– all employment with the employer must be severed;
– the decision to terminate employment is at the employer’s initiative
without the consent of the employee; and
– ‘constructive dismissal’ is a dismissal under the tax rules.
Essentially, where there is no consent from the employee such as
where an employee resigns under threat (explicit or implicit) of
dismissal.
What is a GRP...
3. The dismissal is caused by the redundancy of the employee’s position
– not for some other reason (eg poor performance);
– “when the functions, duties and responsibilities formerly attached to
the position are determined by the employer to be superfluous to
the current needs and purposes of the organisation”;
– if there is more than one reason for the dismissal, the redundancy
of the position must be the most influential reason; and
– Weeks v Commissioner of Taxation (2013) FFC.
What is a GRP...
4. The redundancy payment is genuinely made because of redundancy
(and not ‘contrived redundancy)
– eg, where an employee is terminated on outsourcing of particular
duties and the employee is immediately re-engaged to perform
those functions; or
– where an employing entity is wound up and some or all of the
employees are immediately re-engaged by a new employing entity.
What is a GRP?
5. To the extent the payment exceeds the amount that could reasonably
be expected to be received by the employee in consequence of the
voluntary termination of employment.
When a payment will NOT be a GRP –
conditions that must be satisfied
The employee must be less than 65 years’ old at the
time of the dismissal
– if the employee’s employment would have terminated at a younger
age then this younger age becomes the employee’s age-based
limit.
The payment is not at the end of a fixed period of
employment
– subject to the ATO’s comments around rolling fixed term contracts.
If the employer and employee are not dealing at
arm’s length in relation to the dismissal
– the payment does not exceed the amount that could reasonably be
expected to be made if the dismissal were at arm’s length.
When a payment will not be a GRP...
At the time of the dismissal, there must not be any
arrangement between the employee and the
employer, or between the employer and another
person, to employ the employee after the dismissal:
– the worker can be re-engaged as an independent contractor subject
to employment law considerations.
A payment will not be a GRP if it is another type of
payment such as:
– unused long service leave or annual leave (although these
payments are concessionally taxed when paid with a GRP).
How is the tax-free part calculated?
You have excluded all amounts that are subject to
more specific tax treatment. If all of the conditions
for a GRP have been satisfied, how is the tax free
part calculated?
Step 1: deduct that amount that could reasonably be expected if the
employee had voluntarily terminated their employment.
Step 2: the tax-free part will be so much of the payment as does not
exceed.
Base amount + [service amount x years of service].
How is the balance treated?
For 2014/15:
– Base amount = $9,514
– Service amount = $4,758
Years of service?
– the number of whole years in the period, or sum of periods, of
employment to which the payment relates; and
– no requirement for the years of service to be continuous provided
the earlier years of service with a previous employer are carried
over and acknowledged on commencement with a new employer.
How is the balance treated?
– as an employment termination payment; and
– even if paid more than 12 months after termination.
Thank you
ROSALIE CATTERMOLE, SENIOR ASSOCIATE
CLAIRE TUFFIELD, SOLICITOR
www.hopgoodganim.com.au