Q: I have just been retrenched after nine years’ service. I am 45 and my income is $87,000. My redundancy package is one month’s pay plus two weeks income for every year of service. They are paying out my annual leave and pro rata long-service leave. I have a lot of sick leave accrued but I get no compensation for this. Is this fair and what are my options?

A: For your employer to have offered you redundancy, they will have decided that your skills and duties were no longer required and your position will no longer exist. They should have offered you redeployment and/or retraining to an alternative role. The minimum entitlements for redundancy are set by the National Employment Standard managed by Fair WorkAustralia. If you work for an organisation with 15 or more employees, given your length of service, you are entitled to the following under NES:

  • 16 weeks’ pay (at your base rate, it does not include allowances, overtime, bonuses or commissions).
  • Annual leave entitlements (accrued).
  • Long-service leave (pro rata).

Accumulated sick leave does not accrue benefits. If your employer has fewer than 15 employees, they are not obliged to pay redundancy and your entitlements are limited to provisions in your employment contract or relevant workplace agreement. You would still be entitled to receive all accrued annual and long-service leave. Your employer’s offer exceeds legal requirements under NES.

Redundancy packages are eligible termination payments and hence have tax benefits. The first $8,435 plus $4,218 of each year of completed service is tax-free and the remainder of an ETP is taxed at 30 per cent. If you are older than 55, the remainder is taxed at 15 per cent. You should get a package of $37,365 plus accrued annual and long-service leave entitlements. As that is less than the ETP tax-free threshold, you will receive your entire ETP tax-free. You cannot roll over these funds into superannuation. They must be taken as cash benefits. Annual and accrued long-service leave payments are taxed at 30 per cent. Further concessions are available for those who began employment before August 16, 1978.

Don’t rush to invest or spend the funds. Use some of the funds to reduce any personal debt. Inform your credit providers if you are unable to make loan repayments. Your financial planner can confirm that your package is calculated correctly and help with a strategy for your change in circumstances.

This article was published in The Australian on 10 December 2011. A direct link to the article can be found here.

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