Severance packages in Australia – why a comprehensive approach matters

Redundancy can be difficult for both the affected employees and the HR teams managing the process. Employees are naturally fearful of the implications of their job loss, while HR teams need to ensure legal compliance and fairness. A severance package can support both parties, minimising the stress involved. 

In this article, we will look at what redundancy pay and severance packages are, the factors affecting payments, legal requirements, and what can be included in a severance package in Australia. Most importantly, we’ll also examine the benefits of offering a comprehensive package to impacted employees, why a comprehensive approach matters, and how to develop a package that’s right for your business. 

A severance package, also called a termination package in Australia, is a suite of pay and benefits offered to employees following job loss. They are most often used when the business needs to downsize through redundancies. At the minimum, it comprises a mandatory pay element, but many employers choose to expand the package with additional offerings. 

The package is designed to ease the burden of job loss while the employee transitions into a new role, providing a financial cushion during the search for a new job and enabling impacted employees to quit without a bad taste in their mouths. 

The exact package will differ depending on the company offering it and their contract with the employee. HR teams should work in collaboration with their legal team, or a legal advisor, to ensure the severance package is legally compliant and watertight. 

Redundancy pay is part of the overall severance package, which can include other benefits on top of a mandatory financial payment. A minimum financial settlement is required by law, whereas the additional pay and benefits within the package are offered at the discretion of the employer. 

Redundancy pay relates specifically to loss of employment when the role no longer exists within the business. Severance pay can relate to other sudden loss of employment, such as the inability to work due to long-term illness. Both are one-off exit payments from the company to the employee. 

Under the National Employment Standards and Fair Work Act, when a role is made redundant, the employee is entitled to redundancy pay if they have been with the employer for at least a year, they are covered under the National Workplace Relations System, and the business employs at least 15 people. 

Employees with less than 12 months’ continuous service, casual or fixed-term contractors, apprentices, and those fired for gross misconduct are not usually entitled to redundancy pay. Companies with fewer than 15 employees do not usually need to make redundancy payments.

While redundancy pay in Australia is usually mandatory, other benefits within the severance package are not. Any additional pay and benefits included within a severance package are offered at the discretion of the company. 

Payments for employee severance in Australia can be affected by:

• Length of continuous employment: Mandatory redundancy pay operates on a sliding scale, from 4 weeks’ pay for employees with at least 12 months’ tenure to 12 weeks’ pay for employees with at least 10 years’ tenure.

• Type of contract: Casual employees or those on time-limited contracts, such as those recruited for a specific project or season, do not qualify for redundancy pay. Conversely, some contracts may specify that the employee qualifies for severance at a higher rate. Employment contracts often have specific clauses relating to redundancy and severance packages. 

• Number of employees within the business: Small businesses operate under different rules to those employing over 15 staff, with most not required to pay redundancy.

Severance pay in Australia does not include:

• Unpaid leave.
• Incentives and bonuses.
• Allowances.
• Overtime.
• Loadings.

If the employer finds alternative work for the displaced employee, they can apply to have the redundancy pay reduced. Engaging an outplacement partner does not reduce the amount payable, even if the displaced employee finds work as a result. Crucially, though, it can reduce the overall cost of redundancy by mitigating potential legal action and maintaining productivity. 

Some industries have separate awards, which can be checked on the Fair Work website.

While a mandatory level of redundancy pay is often required, a comprehensive severance package can include much more. While not legally necessary, many employers choose to offer their displaced employees additional benefits on termination of their contract. 

A comprehensive severance package in Australia can include: 

• Additional redundancy pay: Companies can offer their own redundancy packages that are more generous than the legal minimum, as a gesture of goodwill. 

• Payment in lieu of notice: A business may choose to pay an employee for their notice period, rather than obliging them to work through that time. 

• Outplacement services and career transition support: In addition to helping employees to land new roles faster and exit with dignity, outplacement services can also reduce risk and legal liability for employers, maintain morale among retained workers, and lower termination costs.

• Employee well-being support: With mental health challenges increasingly impacting employee productivity, businesses can protect their reputation through difficult transitions by offering coaching and well-being services. 

• Benefits continuation: The employer may choose to continue employment benefits such as private health insurance, gym memberships, or vehicle use for a set period of time.

• Pro-rated bonuses: Work already completed may be recognised with a pro-rated bonus, which can be tax free.

• Legal and financial advice: To protect both the employer and the employee, legal and financial advice can be provided through the transition, reducing the potential for unfair dismissal claims.

• Office equipment: Equipment such as mobile phones and laptops, technically owned by the company, can be transferred to the employee as part of the redundancy package. 

• Legal waiver: A Deed of Release may be required to confirm that the severance package is the full and final settlement, protecting the company from future claims or defamation.

Flexibility is increasingly being built into severance packages so that displaced employees can choose the support that is right for them. For example, a Gen Z employee might opt for mental health support, while an older employee might use outplacement support to plan for retirement. 

Comprehensive severance packages clearly come at a cost, but they are more than just a nice-to-have for employees. To justify the cost, the business must also see a return. 

Employee transition programs and redundancy packages in Australia provide ROI through:  

• Brand protection: A badly handled redundancy exercise can negatively impact the reputation of a hard-won company brand. It only takes a few disgruntled employees to post on social media or speak to the press for years of brand-building to crumble, affecting recruitment and retention for years to come. Going beyond the legally mandated minimum and providing holistic support to impacted employees can prevent this brand damage. 

• Customer retention: The effects of redundancy don’t just affect employees. As well as protecting the brand for future talent acquisition, a smooth redundancy process can also protect the bottom line as customers are more likely to stay with a supplier that has a good reputation. 

• Smoother transitions: The career advice, resume writing, and interview support offered by outplacement companies can smooth the transition of departing employees. This not only shows that the company actively lives its brand standards, it also minimises disruption within the business both during and after the redundancy period. 

• Knowledge retention: When departing employees leave on good terms, and feeling that the company has treated them fairly, they are more likely to provide a comprehensive handover of their work and remain engaged for longer. That helps to ensure specialist knowledge is retained within the business. 

• Reduced risk: When displaced employees experience job loss, tensions run high. A robust severance package can mitigate some of the risk associated with terminations, such as legal disputes, discrimination claims, and breach of contract. 

• Employee trust: Redundancy processes can also negatively impact retained employees. They may fear for their own jobs, feel less loyal to the company, and experience survivor’s guilt. This can all negatively impact morale and productivity. Offering outplacement services as part of a comprehensive redundancy package shows these employees that the company cares about them and will support them if their roles are retrenched in the future. As a result, there is a smoother transition to business-as-usual following the upheaval of redundancy, with morale and productivity maintained.

• Builds company culture: Supporting retrenched employees reinforces company values, showing current and future staff that the company will treat them as human beings through good times and bad. Actively supporting the workforce with benefits, such as outplacement, shows that values are lived and meant – not just a nice marketing message. 

• Attraction and retention: A full severance package can position the business as an employer of choice. Treating employees fairly and offering redundancy benefits will attract top talent in the future and make it easier to retain existing employees. 

• Support for HR: As well as managing their day-to-day work, HR teams suddenly have the additional burden of not only running a legally compliant and time-consuming redundancy process, but also fielding an increase in contact from impacted staff. A generous redundancy package, delivered in partnership with an outplacement service, can greatly reduce the mental load and resources required within the HR team. 

Use these 5 steps to create a severance package that serves both the business and its displaced staff. 

1. Comply

Verify the legal right of every impacted employee to receive redundancy pay and the amount they are entitled to. This is the bare minimum that the business needs to offer.

2. Check 

Check the employment contract of every impacted employee to identify any additional redundancy terms. 

3. Benchmark

Evaluate competitor severance packages to ensure the business remains competitive and will still be able to attract and retain talent in the future. 

4. Consult

Speak to HR leaders, legal advisors, and impacted staff, to ensure the proposed package is in line with best practice, financially viable, legally compliant, and meets expectations. 

5. Present

Communicate the proposed package clearly and transparently. Involve both departing and retained staff, to build trust and mitigate disengagement.  

Redundancy doesn’t need to be unpleasant. While it’s not a situation the business or the affected employees would choose, a robust severance package with outplacement support can ease the transition for everyone concerned. 

In summary:

• Severance packages comprise legally mandated redundancy pay plus additional employer benefits.
• Benefits can be financial (such as pro-rated bonuses) or holistic (such as outplacement services).
• Outplacement helps employees to land new roles more quickly and leave the company with dignity.
• A strong severance package can deliver a strong return on investment by reducing liability, improving attraction and retention, and protecting the company’s reputation.
• A fair redundancy process that treats the workforce as humans, rather than resources, can be the difference between former employees advocating for, rather than damaging, the company.

Why not speak to Careerminds to see if we’re the right outplacement partner for your business? With a 95% placement rate, global reach, and expertise in redeployment and career transition, we’re well placed to work alongside your HR team to deliver a successful redundancy program.