Understanding voluntary redundancy
Nobody likes the thought of losing their job, but there are times when organisational changes mean that certain positions are no longer required. Economic dips, industry changes, internal shifts, company mismanagement – there are many reasons positions can be made redundant.
In some cases, your company may give you the opportunity to accept redundancy, also known as voluntary redundancy. In this guide, we cover what voluntary redundancy is, the difference between voluntary and involuntary redundancy, and when it makes sense to accept a redundancy package.
What is a voluntary redundancy?
Voluntary redundancy is a form of employment termination that’s driven by organisational needs rather than employee performance. The main thing that sets voluntary redundancy apart from involuntary redundancy is that the employee is given the opportunity to make themselves redundant. If you choose to take voluntary redundancy as an employee, you’ll often need to provide your employer with a voluntary redundancy request letter to formalise your decision.
It’s important to note that redundancy, whether voluntary or involuntary, is different from being terminated from a job. With a redundancy, it’s the position itself that’s no longer required, rather than the employee. As for being fired from a job, employers in Australia must have a justifiable reason for terminating employment, like misconduct or poor performance.
Companies will often offer additional benefits, usually in the form of financial incentives, to encourage employees to take voluntary redundancy. While the financial incentive that often comes with taking voluntary redundancy might seem like an attractive option for some employees, this type of termination doesn’t come without drawbacks.
For example, you might struggle to find a new role depending on the state of the job market, which can lead to financial uncertainty. Not to mention, taking voluntary redundancy could also impact your career progression and even affect your emotional wellbeing.
What is voluntary redundancy vs. involuntary redundancy?
There are two types of redundancy, voluntary and involuntary redundancy. Here’s an overview of the difference between voluntary and involuntary redundancy.
Voluntary redundancy
Voluntary redundancy refers to a situation where an employer offers employees the option to leave the company, often in exchange for a redundancy package. Basically, you have the choice not to take redundancy and instead be transferred to a different part of the company, into a role that’s still required.
Choice: voluntary redundancy leaves the decision in the hands of the employee, empowering them to take control of their own career transition.
Financial incentives: in order to encourage employees to take voluntary redundancies, employers will often offer attractive financial packages or incentives.
Legal risks: even when employees accept voluntary redundancies, there’s still the chance they could take legal action, like claims related to discrimination, coercion and fair compensation.
Involuntary redundancy
Unlike voluntary redundancy, involuntary or forced redundancy occurs when an employer decides the employee’s position is no longer required and the employee is forced to leave the company, with no option for transferring to a different role.
Choice: the employee being made redundant doesn’t have a choice.
Financial incentives: like voluntary redundancies, forced redundancy payouts generally don't offer anything above what is legally required and detailed in the National Employment Standards (NES).
Legal risks: involuntary redundancy often comes with a higher risk of legal action compared to voluntary redundancy. Employees may claim unfair dismissal, failure to provide adequate notice, or failure to comply with redundancy pay entitlements.
Whether your organisation is offering voluntary redundancy options to employees or they’re taking the involuntary redundancy route, you should maintain detailed records of the redundancy process. Your records should include the rationale, the consultation process, and communication from your employer.
Keeping official documentation is an essential part of ensuring how to get a redundancy package that reflects your commitment to your employer.
When should you take voluntary redundancy in Australia?
Regarding the question of “should I take voluntary redundancy?” the answer ultimately comes down to personal preference. Deciding to take voluntary redundancy has pros and cons, and while there are several good reasons for accepting voluntary redundancy, it’s important to consider the drawbacks as well. Here are some of the main things to consider.
Financial considerations
One of the main factors to consider when facing voluntary redundancy is money. While most voluntary redundancies come with a significant payout, it requires careful thought and planning on your behalf to ensure the amount can support you while you find another job.
Future job prospects
The job market is constantly changing, which can either make it easier or more challenging to find a job. If there are plenty of job prospects available within your industry, it could be a good time to consider voluntary redundancy. If your industry is experiencing a downturn, it might be better to stay with your employer.
Career objectives
Take this time as an opportunity to reflect on your career goals and aspirations. If you’ve been thinking about a career change, pursuing further education or starting your own business, voluntary redundancy could provide you with the financial support and time you need to take this next step in your career.
Personal circumstances
Your personal circumstances also play an important role in deciding whether voluntary redundancy is the right choice for you. For example, if you’re considering expanding your family or you’ve already got a baby on the way, taking voluntary redundancy could provide you with more time to spend with your family – or it could introduce uncertainty at a time when you need stability.
Emotional readiness
Emotional wellbeing is another factor to consider when deciding whether to take redundancy. Entering the job market after being made redundant is an exciting but challenging prospect, especially if you’ve been in your position for some time. Having the right mindset is crucial when applying and interviewing for jobs.
Pros and cons of voluntary redundancy
To help you evaluate the potential benefits and drawbacks of voluntary redundancy, here’s a list of pros and cons you can use to make a decision.
Pros of voluntary redundancy
- Significant payout
- Opportunity for a career change
- Can take a break from working
- Time for independent skill development
- Savings from payout, if starting a new job straight away
Cons of voluntary redundancy
- It might be difficult to get another job
- You may face financial stress
- Employment gap
- Lost employment benefits
- Negative psychological impact
What is a voluntary redundancy package?
The NES outlines the redundancy pay that an employee should receive at the end of their employment. This amount is paid at the employee’s base pay rate for ordinary hours worked, so it doesn’t include:
- Incentive-based payment and bonuses
- Loadings
- Monetary allowances
- Overtime or penalty rates
- Any other separately identifiable amounts
According to Fair Work Australia, your redundancy payout is influenced by your period of continuous service:
- At least 1 year but less than 2 years: 4 weeks’ redundancy pay
- At least 2 years but less than 3 years: 6 weeks’ redundancy pay
- At least 3 years but less than 4 years: 7 weeks’ redundancy pay
- At least 4 years but less than 5 years: 8 weeks’ redundancy pay
- At least 5 years but less than 6 years: 10 weeks’ redundancy pay
- At least 6 years but less than 7 years: 11 weeks’ redundancy pay
- At least 7 years but less than 8 years: 13 weeks’ redundancy pay
- At least 8 years but less than 9 years: 14 weeks’ redundancy pay
- At least 9 years but less than 10 years: 16 weeks’ redundancy pay
- At least 10 years: 12 weeks’ redundancy pay*
There is a reduction in redundancy pay from 16 weeks to 12 weeks for employees with at least 10 years’ continuous service. This is consistent with the 2004 Redundancy Case decision made by the Australian Industrial Relations Commission.
Use the above as a guide to help you calculate fair compensation in your redundancy package.
For example, if you’ve been with your organisation for 6.5 years, you should expect around 11 weeks’ worth of pay as part of your redundancy package.
If you need help working out your redundancy payment, you can use the Fair Work Ombudsman’s Notice and Redundancy Calculator to figure out your entitlements.
Accepting voluntary redundancy can open up doors to a number of new possibilities, but it also comes with challenges. If you’ve just submitted your voluntary redundancy letter to your employer, make sure you’re clear on your entitlements, as outlined above and in your employer’s policies and guidelines.
Starting again after redundancy is a new opportunity for your career. The key to using the time effectively comes down to careful financial planning, being flexible with your professional goals, and maintaining a positive mindset.
FAQs
Can I ask for voluntary redundancy in Australia?
If you’re aware that your colleagues have been offered voluntary redundancy, but that same offer hasn’t been made to you, you may wish to approach your employer and ask for voluntary redundancy. If your colleagues choose not to accept their offers, one may be extended to you.
How is voluntary redundancy pay calculated in Australia?
Voluntary redundancy pay is calculated in line with the NES. The amount of pay offered to employees taking voluntary redundancy is based on their continuous period of service with their employer. It’s also worth noting that the amount paid is based on their base pay rate for ordinary hours worked.
Is voluntary redundancy tax-free in Australia?
If you accept voluntary redundancy because your role is no longer required, it’s considered a genuine redundancy. A genuine redundancy payment is:
- Tax-free up to a limit, depending on your years of service
- Concessionally taxed as an employment termination payment (ETP) above your tax-free limit
- Taxed at your usual marginal tax rate for any amount above certain caps
How much will I get if I take voluntary redundancy?
The amount you receive when taking voluntary redundancy depends on how long you’ve been working for your organisation. Your employer should provide you with the details of your redundancy package and an estimate of your redundancy payment in your redundancy letter.
Is it worth taking voluntary redundancy?
Whether it’s worth taking voluntary redundancy comes down to your individual circumstances. For example, if you’ve been considering a career change, taking voluntary redundancy could be the financial boost you need to get started.
Does voluntary redundancy look bad on a CV?
Hiring managers understand that redundancy is a normal part of business operations, so it shouldn’t affect your chances of getting a new job. Be sure to include the correct start and end dates of your previous employment on your resumé. Address any career breaks honestly.
Can you negotiate voluntary redundancy?
As an employee, you may be able to negotiate your redundancy package. The statutory requirements of your redundancy package, like your annual leave, long-service leave, sick leave and other conditions are typically linked to your contract or award, and can’t be negotiated. However, if you aren’t covered by an award, you may be able to negotiate for a higher amount.
What do you mean by redundancy?
Redundancy means that your position is no longer required by your company – your job role will not exist anymore. As a result, you may be offered the opportunity to take redundancy voluntarily. If you choose not to take voluntary redundancy, you may be offered another position in the company or a related company, or you may eventually be forced to take involuntary redundancy, which typically does not come with extra financial incentives.
Is it better to be made redundant or resign?
If you’re a permanent employee and you’ve been with your employer for more than one year, you’re better off being made redundant rather than resigning. If it looks like there may be redundancies at your workplace and you resign from your position beforehand, you’re not entitled to any redundancy benefits, like a redundancy payout.
What are the risks of voluntary redundancy?
As an employee, there are a number of risks that come with voluntary redundancy, including:
- Financial strain, if your redundancy package isn’t sufficient to support you in the interim while you find a new job
- Potential challenges in finding a new role
- Missing out on employee benefits that you receive as part of your role
- The uncertainty that comes with being back on the job market, which can lead to stress and other negative emotions
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