What is Severance Pay?
Severance pay must be paid for most redundant employees, but how it works differs from one employee to another. Find out more about severance pay here.
Are redundant employees entitled to compensation? What about if you fired them, can they still get compensation then? The answer to these questions depends on whether severance pay is payable? Severance pay is compensation for early-ended employment contracts. This article covers the ins and outs of severance pay.
Redundancy means a job no longer exists. Generally, employees get severance pay for this. However, the pay level depends on the employee’s base rate and how long they have been employed. To calculate this, you must follow this two step process:
- By accessing the FairWork Ombudsman’s website here, you must determine the number of weeks payable,
- Pay the base rate for the weeks owed.
The Fair Work Ombudsman’s table of Severance Pay:
|Period of Continuous Service||Redundancy Pay|
|At least 1 year, but less than 2||4 weeks|
|At least 2 years, but less than 3||6 weeks|
|At least 3 years, but less than 4||7 weeks|
|At least 4 years, but less than 5||8 weeks|
|At least 5 years, but less than 6||10 weeks|
|At least 6 years, but less than 7||11 weeks|
|At least 7 years, but less than 8||13 weeks|
|At least 8 years, but less than 9||14 weeks|
|At least 9 years, but less than 10||16 weeks|
|At least 10 years||12 weeks|
When severance pay does not Apply
Severance pay does not apply to all employee classes. Redundancy for these employee classes does not carry severance pay. The list of non-applicable classes are:
- Casual employees
- Fixed-term employment (certain period of time, season or task)
- Dismissal for misconduct–you still need to pay the employee any unpaid wages and any applicable entitlements up to the point of the dismissal
- Small business employees
Small Business Employees
You need to know the small business exemption test to see if it applies. The test is complex, so you need to contact an employment lawyer if you feel the small business exemption applies to your business. To apply the exemption to your business, you must first be defined as a small business under section 23 of the Fair Work Act of 2009 (Cth). The requirements are:
- Must have fewer than 15 employees,
- This includes the employee claiming severance pay as well as any other employees facing redundancy or dismissal,
- Do not count casual employees employed on a regular and systematic basis–the Courts define regular as a pattern of hours worked consistently and systematic as a schedule of shifts or work that the employee follows regularly. Also, the employee must prove an expectation to be offered regular and systematic employment,
- All employees from any associate businesses are counted.
Severance pay is payable for redundancy. Severance pay and other penalties do not apply for misconduct dismissals. You need to contact an employment lawyer to find out more.
Want to know more? Contact a LawPath consultant on 1800 529 728 to learn more about Severance Pay and to obtain a fixed-fee quote from Australia’s largest legal marketplace.
Vincent is a Legal Tech Intern at Lawpath as part of the Content Team. He is in the second year of his Juris Doctor law degree at Macquarie University. He is interested in both International Commercial Law and Criminal Law.