HR Practice For Payroll Practitioners

HR Practice for Payroll Practitioners

What is redundancy compensation?

Redundancy compensation is an agreed-upon term in which the employer agrees to pay the employee for losing their job/position. What is paid is a matter of agreement. The employer is under no obligation to provide redundancy compensation, and this is where there may be a clause in the employee employment agreement, such as:

• No redundancy compensation is payable.

If a redundancy compensation payment has been agreed to be paid, it usually has two elements:

• time (based on the employee's length of employment) and • money (the rate at which it will be paid).

Time is usually stated in years of service, with each year related to the number of weeks that will be paid to the employee for being made redundant.

Example 1:

A typical redundancy compensation calculation clause could include:

• 4 weeks for the first year employed • 2 weeks for any subsequent year • Paid at the employee's ordinary rate of pay

The above example could mean it is unlimited, so the longer the employee has worked, the larger the redundancy compensation payment every year will be included.

Example 2:

The employee has worked for 20 years, and in the employment agreement, their ordinary rate of pay per week would be $1000. They are now being made redundant.

© New Zealand Payroll Practitioners Association, Sep 2024, Ver 12

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