Know your obligations when making redundancy and termination payments.

How to calculate redundancy and termination payments

Redundancy and termination payments are covered by the Fair Work Act 2009 and form part of the National Employment Standards (NES).

This makes it especially important for companies to conform to the regulations, as a contravention of NES could lead to fines of up to $6,600 for an individual or $33,000 for a corporation.

Employers are required to follow strict standards on how much pay is awarded to those who have been subject to employee dismissal – as well as the amount of notice they are given.

In many cases, there is confusion over the differences between calculating employees’ redundancy and termination payments.

This often stems from people being unaware of what differentiates the base rate of pay from the full rate.

The base rate of pay is the amount awarded to the employee for their usual hours of work and excludes any extras such as bonuses, incentives and allowances.

On the other hand, the full rate of pay includes any additional payments made to the worker during their period of employment.

The amount of redundancy pay given to the worker will depend on how long they had been in continuous service with their employer at the time of termination.

For example, those who have worked for at least one year but less than two should be given a redundancy pay period of four weeks.

This compares to a 16-week pay period for those employed for between nine and ten years.

Even in light of this, a small business employer is not required to make redundancy payments to its staff – this applies to companies with fewer than 15 employees.

Workers with a period of continuous service less than 12 months will also not receive payments and neither will those who have been dismissed due to misconduct.

Free Download: Termination Letter Template

Need to let an employee go? Use our letter of termination template to ensure you are using the correct format. 

termination letter template