Q: I have been made redundant after nine years’ service. I am 51 and my income is $95,000. 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: Redundancy can occur in one of two main ways; voluntary, where you elect to be made redundant, or forced, where your employer terminates your employment due to changes in the business.
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 obligations for employers and minimum entitlements for employees are set by the National Employment Standard (NES) managed by Fair Work Australia. Given your length of service, if you are made redundant and work for an organisation with 15 or more employees, you are entitled to the following; 16 weeks’ pay at your base pay (Note this does not include allowances, overtime, bonuses or commissions). Annual leave entitlements (accrued) and Long-service leave on a pro-rata basis.
Your employer is not obliged to pay out any unused sick leave.
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.
The offer made by your employer exceeds their legal requirements under NES.
Genuine redundancy packages are treated as eligible termination payments (ETP) and have tax benefits. The first $10,638 plus $5,320 of each year of completed service is tax-free. This is referred to as the ETP Tax-free threshold. Based on your age, the remainder of an ETP would be taxed at 30% plus Medicare Levy up to a cap of $210,000. Above this, the ETP is taxed at 45% plus Medicare Levy.
Based on your years of service, you should get a redundancy payment of $40,801 plus accrued annual and long-service leave entitlements. As the redundancy payment is less than the ETP tax-free threshold, you will receive your redundancy payment tax-free.
As your termination payment is as a result of genuine redundancy, annual and accrued long service leave payments are taxed at 30%.
Draw up a Budget to understand what your living expenses are and how long your redundancy package would last in the event of a prolonged period of unemployment.
Don’t rush to invest or spend the funds. Use some of the redundancy package 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.