Termination Essentials

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Redundancy compensation

The process of making an employee redundant has been discussed in a previous section. Making a redundancy compensation payment is an agreed term and is not a legislative requirement.

Ruling out a redundancy compensation payment

If the business does not want to pay any form of redundancy compensation and wants that to be clear to an employee, the following clause is the common approach to be included in the employment agreement:

No redundancy compensation is payable.

Defining a redundancy compensation payment

If the business wants to provide a payment to an employee if they are made redundant for payroll, it needs to be a clear and concise clause, here are two examples of commonly used redundancy compensation payment clauses fixed and formula-based:

Fixed amount redundancy clause:

Redundancy is when an employee’s role is no longer required. If after following a good faith restructuring process the employee is made redundant, they will be given notice as set out in Ending employment. They will get redundancy compensation of $XXXX before tax.

Formula-based redundancy clause:

Redundancy is when an employee’s role is no longer required. If after following a good faith restructuring process the employee is made redundant, they will be given notice as set out in Ending employment. They will also get redundancy compensation based on this formula: for each full year worked for the employer, up to a maximum of $XXXX. Partial years will be paid pro rata.

© New Zealand Payroll Practitioners Association, Mar 2026, Ver 9

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