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Redundancies and serious restructures are always hard for businesses, as they are for affected employees. During a redundancy, compensation can help soften the blow for the employee. It can also be a helpful tool when a business is seeking voluntary redundancies. In New Zealand, businesses are not legally required to pay redundancy. However, this is subject to an applicable employment agreement. Nonetheless, it can be a great thing for businesses to consider. This article will set out if and when businesses are legally required to offer redundancy pay, and the circumstances when you might pay it anyway.

Do You Legally Have to Offer Redundancy Pay in New Zealand?

Employers do not have to legally pay workers redundancy pay in New Zealand. In many circumstances, following redundancy, an employee may not be paid any money beyond their final pay. However, this depends on the employment agreement that is applicable in the situation. However, many collective agreements include compensation for redundancies. This agreement will apply if the employee is part of the collective agreement. Furthermore, sometimes employment agreements also will include a provision for redundancy pay. This is particularly if most employees in the organisation are part of a collective agreement.

However, New Zealand businesses do not need to offer redundancy pay outside the exceptions. This is an example where employment law in New Zealand differs from other jurisdictions around the world.

Should Your Business Offer Redundancy Pay Even if Not Required To?

It may seem counterintuitive for a business to offer redundancy pay when there is no legal requirement to do so. However, this can be a great thing to consider. A business may want to reward a highly valued employee. Or a business may want to thank someone who has spent a long period of service with the business. This kind of proactive approach has a range of benefits, including: 

  • easing the effect of the redundancy on the employee in question
  • providing the employee with more financial security when finding another job (or retirement if they are retiring); and
  • reinforcing your business’ positive approach to employees and reputation as a good employer. Therefore, offering redundancy pay can be an act of good faith. It can also be an investment in your business’ reputation.

What About Voluntary Redundancy?

Another way in which offering redundancy pay can be a helpful business option is in the case of voluntary redundancies. Voluntary redundancies are when employees volunteer to take redundancy, usually to receive a redundancy payment or other kind of benefit or incentive offered by the business. Voluntary redundancies can be a great way of reducing staff costs without a painful restructuring or other processes. Employers can offer a payout in the form of voluntary redundancy compensation to encourage staff to take this option up.

Where many employees are otherwise facing redundancy, employers can sometimes offer a large payout to entice employees to leave in the first instance, sometimes with the positive result that the business does not need to run a restructuring process. A voluntary redundancy package can include other benefits, too, like an extended notice period, additional time off work, and support for obtaining other employment or work. Voluntary redundancy can be a nice win-win for employees and employers alike, and redundancy compensation will usually be an important part of the incentive to make the offer a success. Note that you cannot force an employee to take this kind of incentive. If they choose not to take a voluntary redundancy package, that is not grounds to otherwise dismiss them without process.

Key Takeaways

There may be situations where your business must legally offer redundancy pay, such as when your employee’s agreement or an applicable collective agreement has a clause for redundancy compensation. However, your business may consider paying redundancy anyway. Common situations where this applies include where a business wants to recognise long or meritorious service by an employee, and where a business is trying to incentivise employees to accept voluntary redundancy and so offers a package including compensation.

If you would like more information about redundancy pay and whether your business should offer it, contact LegalVision’s employment lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is redundancy pay?

Redundancy pay is compensation paid to an employee when their role is made redundant, meaning that their employment with your business is terminated at the end of a redundancy process.

Is it legally required to pay compensation to employees who are made redundant?

No, it is not legally required to pay compensation to all employees made redundant. However, if the employee’s employment agreement or collective agreement includes a clause for redundancy compensation, this takes precedence and is legally binding.

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