Redundancy Payouts and Entitlements - The Definitive New Zealand Guide
Our guide outlines what you may be entitled to, how redundancy (sometimes called severance payments) payouts work, must-know tips to get you back into work, and ways to minimise the impact on your finances
Updated 6 June 2021
Redundancy Payouts and Entitlements in New Zealand
Anyone who has been made redundant will tell you it is an extremely stressful experience. Stress and financial uncertainty are difficult for many people to deal with. However, there are some safeguards in place that can help stabilise your finances in the short term as you look for another job.
The good news is there are proven ways to protect your finances and mental health by planning ahead. Our guide outlines what you may be entitled to, how redundancy (sometimes called severance payments) payouts work, must-know tips to get you back into work, and ways to minimise the impact on your finances.
We cover:
Know This: If your finances are stretched, we suggest talking to the companies you owe money to as soon as possible. Our debt help guide explains your options and how to make a hardship application. A summary guide from the Commerce Commission also outlines popular steps.
The good news is there are proven ways to protect your finances and mental health by planning ahead. Our guide outlines what you may be entitled to, how redundancy (sometimes called severance payments) payouts work, must-know tips to get you back into work, and ways to minimise the impact on your finances.
We cover:
- What is Redundancy? (and Everything You Need to Know to Be Prepared)
- Redundancy Checklist
- Redundancy - Frequently Asked Questions
Know This: If your finances are stretched, we suggest talking to the companies you owe money to as soon as possible. Our debt help guide explains your options and how to make a hardship application. A summary guide from the Commerce Commission also outlines popular steps.
What is Redundancy? (and Everything You Need to Know to Be Prepared)
Most people will experience redundancy at some point in their careers. It happens. New Zealand's economy is constantly evolving and changing, and in some circumstances, that means a job is no longer needed for reasons including:
The process of redundancy must follow the law, which is designed to protect employees. Most employers are well aware of them and work to ensure any actions they take are legal and justified.
- New technology
- Demand for the organisation's product has been reduced
- A business is sold, or an organisation's functions contracted to another outside organisation
- A department is restructured or outsourced
- The business becomes insolvent
The process of redundancy must follow the law, which is designed to protect employees. Most employers are well aware of them and work to ensure any actions they take are legal and justified.
How much is a redundancy payout?
- There is no legal entitlement to redundancy pay in New Zealand unless written into your employment agreement.
- If your employment agreement has a redundancy pay clause, your employer must adhere to the clauses defined in your employment agreement.
- These redundancy clauses generally include the procedural steps, redundancy pay you are entitled to, notice periods, and other compensation you may be entitled to receive.
- There are cases when a redundancy may be considered unjustified. This generally happens if an employer cannot demonstrate legitimate business reasons supporting the redundancy or failed to act in good faith and in a fair, reasonable way to those impacted.
Important: Unused annual leave and salary, along with any other entitlements, up to the end date is payable over and above any redundancy payment. This means if you have, for example, five weeks annual leave owing and your redundancy agreement pays out six weeks, you'll receive a total payment of eleven weeks.
Complaints about Redundancy
- If your position is made redundant and you don't believe the reason falls within the law, you can make a personal grievance to the Employment Relations Authority. You can also appeal to the Employment Court if you are not satisfied with the outcome.
- If you feel that your employer mistreated you during the redundancy process, call the Ministry of Business, Innovation, and Employment (MBIE) on 0800 20 90 20 or contact an employment lawyer to help understand your options and help you navigate the legal process.
- There is also a helpful guide on redundancy provided by Work and Income, as well as Sorted.org.nz
COVID-19 impacts on redundancy
- During the COVID-19 pandemic, your employment rights continued to apply. The rules and applicable laws regarding redundancies have continued unchanged during the COVID-19 crisis. Employers are still legally required to consult with you first and always to act fairly and reasonably. The redundancy consultation process usually takes two weeks. However, during COVID-19, a shorter timeline may have been "reasonable."
- If your employer didn't consult with you properly, or the proposed restructuring wasn't justified. In that case, you may still be able to challenge any changes to your employment conditions through a personal grievance, depending on how much time has passed.
Is there any opportunity to negotiate the amount of a redundancy payout?
- In most cases, your redundancy payment is outlined in detail in your employment contract and cannot be negotiated.
- However, some circumstances may put you in a position to negotiate a higher payout. Things like having unique knowledge of the company's processes or products or if you were the primary contact with an important client or supplier.
- While your employer holds most of the power in a redundancy situation, if you think you may be in a position to negotiate a higher redundancy offer, there is also no harm in making a counter-offer.
- If you decide to make a counter-offer, you may want to talk with an accountant or employment lawyer to clarify what you can ask for in your counter-offer.
Tax implications of redundancy payments
The government makes it clear - a redundancy payment is taxable income, and your employer should deduct the tax and pay it on your behalf. If they do not, then you'll be responsible for paying it yourself.
Redundancy may increase or decrease the income you are expecting in a financial year which can impact your:
More details are provided by the IRD here.
Redundancy may increase or decrease the income you are expecting in a financial year which can impact your:
- Income tax
- Working for Families tax credits entitlements
- KiwiSaver contributions
- Student loan repayments and balance
- Child support
More details are provided by the IRD here.
Know This - The Law Requires Employers to Follow Redundancy Requirements
If an employer decides to make an employee redundant, they must follow a specific process to ensure employees are treated fairly. The process includes:
There may be specific terms in employment agreements that detail how an employer will support any staff during the redundancy process. In such instances, employers must provide the agreed-upon support to employees as part of their contract.
- Thorough documentation of the redundancy case and proposal, which must be presented to employees
- Gathering employee feedback and taking any issues that come up into consideration
- Confirming all employment and position changes in writing or via a meeting (in person or online)
- Implementation of the business changes and redundancy (for example, if a position is being outsourced triggering the redundancy, the work must be outsourced)
- Ensuring open lines of communication with affected employees
There may be specific terms in employment agreements that detail how an employer will support any staff during the redundancy process. In such instances, employers must provide the agreed-upon support to employees as part of their contract.
Redundancy Checklist
If you’ve been made redundant, protecting your finances while eliminating hurdles to returning to work is your top priority. This checklist outlines proven options to make a smooth transition to employment and doesn't depend on your location, experience and industry to be effective. We suggest the following course of action:
- Contact Work and Income as soon as possible. If you qualify for financial support, the sooner you get registered, the better.
- Budget and get control of expenses. Our best budgeting apps and ways to save money guide you with easy-to-action tips to cut down on costs and know where every dollar goes.
- Get debts under control. Our debt help guide has everything you need to know.
- Start job hunting. Our CV templates and interview questions guide have you covered. You can also read how to improve your Linkedin profile.
- Be honest with your family. Losing your job puts stress on any relationship, and there may be feelings of shame. You must put this to one side and know redundancy, especially post COVID-19, is increasingly common. Be open with your loved ones who, hopefully, will be supportive. If you feel depressed, you can contact helplines and support services such as the Samaritans.
- Look after yourself. There is hope, and while ageism is a massive issue in New Zealand workplaces, if you've got experience and a positive attitude, you should be able to secure a new job in the meantime.
Redundancy - Frequently Asked Questions
Redundancy is worrying, but you do have rights and options. We've listed common queries below to help put your mind at ease.
How do I know if there are any redundancy entitlement specific to my job and employer?
Employment New Zealand makes it clear - Whether employees receive redundancy payments is dependent on the applicable employment agreements and is a matter for negotiation between the parties. This means you need to read and understand the details of your employment agreement. It will contain specific details with respect to the redundancy process and any entitlements you may be eligible for. Your contract is unique and will tell you everything you're entitled to.
What if there is nothing in my employment agreement that defines a notice period for redundancy?
In that case, something defined as "reasonable notice" must be given and what is considered reasonable varies according to several factors (as outlined by Employment New Zealand), including:
In such cases, you can negotiate a payment that is fair and reasonable based on the above factors. That being said, you and your employer will have different expectations as to what the amount should be.
- The reason for redundancy
- The length of service of the employee
- The seniority of the employee and/or remuneration package
- The generally accepted custom, practice, and industry norms
- The ability for you to find alternative employment
- Compensation being paid
In such cases, you can negotiate a payment that is fair and reasonable based on the above factors. That being said, you and your employer will have different expectations as to what the amount should be.
When can someone be made redundant?
There are several circumstances for which an employee can be made redundant, including:
- The position is no longer needed due to changes in the employer's needs. For example, if a restaurant has a sharp decline in customers, they may not need as many employees.
- The position actually disappears. An employer cannot claim redundancy by slightly changing a job description.
- The business is closing or going into bankruptcy.
What is the process if I am made redundant?
If your position is made redundant, your employer will provide you with notice in writing, and it will ask that you attend a meeting regarding the process. Your employer will explain the situation to you and provide you with the information necessary to understand your options and seek legal advice if you choose. At this meeting, you may have the opportunity to negotiate your redundancy term and payout if you so desire.
My position was made redundant, and I don't know who to go to for help?
If your position has been made redundant, you will probably have many questions, and there are resources available to help you. Work and Income has a helpful list of options which is an excellent starting point. You won't qualify for Jobseeker Support payments if your partner or spouse has a job, but other benefits may be available. With regards to the job you've been made redundant from, you can find emotional support by talking to workmates also made redundant and, if applicable, your union representative.
Is there any way for me to provide feedback or questions to my employer in a redundancy situation?
When your (and others) position(s) are made redundant, the documentation given to you should identify a process for feedback and questions to be provided and answered in person or in writing. In most cases, comments and questions can be given to your manager, by an individual or as a group of workmates, or through your representative. If you're not a member of a union, then it's up to you to press for answers to your concerns.
If I do get redundancy pay, how is it calculated?
While employers do not have a legal obligation under New Zealand law to make redundancy payments, there is generally a specific formula or calculation defined in an employment contract to determine the amount of the redundancy payment. Standard methods for redundancy payments include:
- Fixed lump sum, or
- Lump-sum determined by a period of time (i.e. four weeks of pay, for example)
- A specific number of week's pay for each year of service (i.e. one week for every year worked)
- There is generally a maximum payout amount also defined (for example, "redundancy pay will not exceed $25,000 or 26 weeks of wages, whichever is the greater")
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