Need To Make An Employee Redundant? What Small Business Owners Must Know

When making an employee redundant, it is crucial you understand what you must do as a small business owner in New Zealand.

As a small business owner in New Zealand, you may not have to pay redundancy. You are, however, required to give notice.

Don’t know where to start? Here’s what you need to know.

Redundancy

Redundancy occurs when:

• An employee’s job is no longer needed, or
• The business the employee was working for becomes bankrupt or insolvent

This may be as a result of new technology, a reduced rate of business growth or a business restructure.

Genuine Redundancy

When making an employee redundant, it must be genuine. This ensures that your employee cannot make a claim for unjustified dismissal.

A genuine redundancy occurs:

• When the employee’s job doesn’t need to be done by anyone once they have been made redundant
• When the employer has followed any relevant employment agreement requirements and/or the requirements made in an agreement between the employee and employer (more on this later)

A redundancy is not genuine in any of the following scenarios:

• The job you have made redundant still needs to be done by someone
• The relevant employment agreement requirements haven’t been followed
• The employee you have made redundant could have reasonably been moved to another job within your small business

Check out our article to learn more about redundancy generally.

Do Small Businesses Have To Pay Redundancy Pay?

Many small businesses in New Zealand do not have to pay redundancy when making an employee redundant.

Your business is considered a ‘small business’ under New Zealand law if you have fewer than 20 employees.

Although these small businesses do not have to pay redundancy, certain industry awards or employment agreements may create an obligation.

For example, the Employment Relations Act 2000 requires that small business owners provide redundancy compensation if it is specified in the employment agreement.

Once you have determined that your business is a small business and not required to pay redundancy, you must still ensure:

1. That it is a genuine redundancy, and
2. That the redundant employee receives all unpaid or owed wages and, where applicable, accrued leave entitlements

Other instances where you may not have to pay redundancy include:

• Employees who have worked in your business for less than 12 months
• Employees employed only for:
  • A specific period of time
  • A specific task or project
  • A particular season

• Employees terminated because of serious misconduct
• Casual employees
• Trainees employed only for the length of the training agreement

Redundancy Notice Period

Generally, you will be required to give your employee notice when making them redundant.

The Employment Relations Act 2000 establishes the minimum notice period an employer must give to an employee when making them redundant:

Period of Continuous Service	Minimum Notice Period
Up to 1 year	1 week
1 year to 5 years	2 weeks
5 years or more	4 weeks

NB: An additional week of notice is required for employees over 50 years old who have completed at least two years of continuous service.

Although you will generally have to provide notice to your employees, you may not have to in certain situations. These include when:

• You have paid the employee in lieu of the notice period.
• The employee is a casual employee.
• The employee has been employed only for a specific time, task or season.
• The employee has been terminated because of serious misconduct.

How Do I Provide Notice?

If you are required to provide notice to the employee you are making redundant, it must be provided in writing.

It is vital that the employee receives the notice of termination. Ways in which you may deliver notice include:

• Personally
• Leaving it at the employee’s last known address or
• Sending by pre-paid post to the employee’s last known address

Any Questions?

Making an employee redundant can be a challenging process for all involved. We understand the difficulties you may face when having to let an employee go. Ensuring that you take the correct steps when doing so is vital in making the process as smooth as possible.

If you have any further questions regarding making an employee redundant, we’re here to help! Reach out to our team today at [email protected] or give us a call on 0800 002 184.

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