Redundancy is one of those business topics that can feel straightforward in theory (“we no longer need this role”), but complicated in practice once you’re dealing with people, process, and legal obligations.
If you’re an employer, you want to make changes in a way that’s fair, legally compliant, and respectful. If you’re an employee, you want to know what you’re actually entitled to, what you should be paid, and whether the redundancy is genuine.
This guide is current and practical (and yes, updated for today’s expectations around process and documentation), but it’s still written in plain English so you can take action with confidence.
We’ll walk through what redundancy is, what redundancy entitlements usually include in New Zealand, and the common issues that can trip businesses up.
What Is A Redundancy (And When Is It Genuine)?
In New Zealand, redundancy generally means your job is no longer needed. It’s about the role becoming surplus to requirements, not about the person being a poor performer.
A redundancy is more likely to be genuine when it’s driven by legitimate business reasons, such as:
- a restructure to improve efficiency (for example, merging two roles into one);
- loss of a key contract or client;
- automation or technology changes removing the need for certain tasks;
- financial pressure and cost-cutting;
- closing a site, branch, or business unit.
Even when the business reason is legitimate, employers still need to follow a fair process. In NZ, employment relationships are governed by good faith obligations under the Employment Relations Act 2000, and that good faith approach is especially important during restructures.
If you’re still deciding whether a role truly needs to be disestablished (or whether you’re just trying to reduce labour costs short-term), you might also need to consider alternatives first. In some situations, “restructure” options like reducing staff hours can be part of a proposal, but they still need consultation and agreement (and they’re not a shortcut around redundancy obligations).
For a more general overview of how redundancy works in practice, Redundancy What You Need To Know is a useful starting point alongside this entitlements-focused guide.
What Are Redundancy Entitlements In New Zealand?
“Redundancy entitlements” can mean different things depending on what you’re talking about:
- legal minimum entitlements (things the law expects as part of ending employment properly), and
- contractual entitlements (things promised in an employment agreement, policy, or collective agreement).
A key point that surprises many employers and employees: there’s no automatic statutory redundancy compensation payment in New Zealand. That means redundancy pay is not guaranteed by law in every case.
However, you will still usually have to deal with several important entitlements when ending employment due to redundancy.
1) Notice Of Termination (Or Payment In Lieu)
In most cases, the employee is entitled to notice of termination. The amount of notice should be set out in the employment agreement. If it’s not clearly set out, what’s “reasonable notice” can depend on the circumstances, but relying on “reasonable” can create risk and uncertainty.
Sometimes employers want the employment to end immediately (for example, because the role has ended and there’s no work to perform). In that case, you may pay the employee instead of having them work out the notice period. This is often called payment in lieu of notice, and it must be handled carefully and in line with the employment agreement.
If you want to get this right, payment in lieu of notice is a common area where a quick check can save you a bigger dispute later.
2) Redundancy Compensation (Only If It’s Owed)
Redundancy compensation (sometimes called redundancy pay) is generally only payable if:
- the employee’s employment agreement includes a redundancy compensation clause;
- a workplace policy promises redundancy pay and forms part of the employee’s terms; or
- a collective agreement applies and includes redundancy provisions.
If there’s no contractual entitlement, you can still choose to offer an ex gratia payment (a discretionary payment) as part of a respectful exit, or to resolve risk. If you do this, it’s smart to document it properly so everyone is clear on what’s being paid and why.
In some situations, the redundancy conversation overlaps with “is this voluntary or not?”. If you’re weighing options like seeking volunteers first, voluntary vs forced redundancy can help you understand how those approaches differ (and the practical risks of getting it wrong).
3) Final Pay (Wages, Allowances, And Other Amounts Owed)
When employment ends, the employee is usually entitled to be paid everything they’ve earned up to their last day, including:
- ordinary wages/salary up to the termination date;
- any contractual allowances (if applicable);
- any commissions or bonuses that are owed under the agreement (this depends heavily on the wording);
- reimbursement of approved work expenses (if they’re properly claimable).
Be cautious about deductions from final pay. Deductions generally require consent, and there are rules under legislation like the Wages Protection Act 1983. If you’re unsure, it’s worth getting advice before making deductions “to balance the books”.
4) Holiday Pay And Annual Leave Entitlements
Redundancy doesn’t wipe out leave entitlements. Under the Holidays Act 2003, employees are usually entitled to:
- payment for any unused annual holidays (accrued/entitled leave); and
- payment for any remaining annual holiday pay (depending on how the employee’s leave is tracked and whether they are entitled to annual holidays yet).
This can get technical quickly (especially with variable hours, recent leave taken in advance, or if you’ve had payroll issues). If you’re not 100% confident that leave is calculated correctly, it’s worth checking before you terminate, because leave miscalculations are a very common cause of post-termination disputes.
5) Time To Consider The Proposal (A Process Entitlement)
In New Zealand, redundancy is not just about the money. It’s also about the process.
A fair redundancy process usually includes giving employees:
- information about the proposal and reasons for change;
- a real opportunity to provide feedback;
- reasonable time to seek advice and respond; and
- consideration of alternatives (including redeployment where available).
You can think of this as a “process entitlement”: employees are entitled to be treated fairly and in good faith, even if redundancy pay is not available.
Some employers also choose to offer non-mandatory supports, such as:
- outplacement support (career coaching, CV support);
- time during work hours to attend interviews;
- an agreed reference letter.
These aren’t usually legal entitlements, but they can be a sensible part of treating people well and protecting the business’s reputation.
How Does The Redundancy Process Work (Step-By-Step)?
If you want to minimise risk, it helps to treat redundancy as a structured process rather than an “announcement”. A typical redundancy process often looks like this.
Step 1: Confirm The Business Reason And Build A Clear Proposal
Before you speak to employees, get clear on your “why”. Your proposal should spell out what’s changing and why, such as:
- what roles are affected (and how);
- the rationale (financial, operational, strategic);
- any options considered (and why they weren’t chosen);
- the proposed timing.
If you don’t have a clear proposal, it’s harder to run a fair consultation and easier for the process to be challenged later.
Step 2: Consult In Good Faith
Consultation means you share the proposal and genuinely listen. It’s not consultation if the decision has already been made.
In practice, consultation usually involves:
- a meeting to explain the proposal;
- providing supporting documents (where appropriate);
- inviting feedback in writing;
- a reasonable timeframe for responses; and
- a follow-up meeting to discuss feedback.
How long is “reasonable” depends on the context, but the key is that the employee has a real opportunity to engage, ask questions, and seek advice.
Step 3: Consider Redeployment Or Alternatives
If there are suitable alternative roles in the business, you should consider whether the employee can be redeployed. This might include:
- a similar role in another team;
- a different role that the employee could do with training;
- a role at a different site (if feasible).
Redeployment obligations depend on your particular workplace and what roles exist, but overlooking obvious alternatives can create real risk.
Step 4: Make A Decision And Communicate It Clearly
Once consultation is complete and you’ve genuinely considered feedback, you can make a final decision.
Communicate outcomes in writing, including:
- the decision and reasons;
- the final structure (where relevant);
- who is impacted;
- notice and termination date;
- how final pay will be calculated;
- any redeployment options (if available).
Step 5: Confirm The Paperwork
This is where having the right documents really matters. Many disputes don’t happen because the business needed to restructure; they happen because the paperwork doesn’t match what was said, or because rights and obligations weren’t clear from the start.
If you’re reviewing or updating your contracts, an up-to-date Employment Contract is one of the most practical ways to set expectations around notice, consultation steps, and what happens if restructure becomes necessary.
Common Redundancy Mistakes That Create Legal Risk
Redundancy claims often come down to process, communication, or inconsistency. Here are some common pitfalls to watch for.
If the real issue is performance or misconduct, redundancy is usually the wrong tool. Even if the role is changing, if the process looks like it’s targeting an individual rather than a position, you can end up facing a personal grievance.
Predetermining The Outcome
Consultation has to be genuine. If you’ve already decided, and you’re just “going through the motions”, that can undermine the entire process.
You don’t always need to disclose every financial detail of the business, but you generally should provide enough information for the employee to understand the proposal and comment meaningfully.
Unclear Selection Criteria (Where Multiple People Are Affected)
If you’re disestablishing one position but there are multiple employees in similar roles, you may need a fair selection process.
Selection criteria should be:
- relevant to the role (skills, experience, qualifications);
- applied consistently;
- not discriminatory (Human Rights Act 1993 issues can arise if criteria indirectly disadvantages protected groups).
Incorrect Final Pay Calculations
Final pay disputes are surprisingly common, especially around leave. If payroll calculations are off, you can end up with a dispute even where the redundancy itself was completely legitimate.
Forgetting Privacy And Data Handling
Redundancy processes involve sensitive personal information (performance notes, salary, restructuring documents, medical information in some cases). Under the Privacy Act 2020, you should be careful about who has access to what, and how information is stored and shared.
What If The Employee Disagrees Or You Want To Settle?
Even with a genuine business reason, an employee may still raise concerns about:
- whether the redundancy was actually genuine;
- whether they were properly consulted;
- whether there were redeployment options available;
- whether the selection criteria were fair;
- whether their final pay was calculated correctly.
Often, these issues can be resolved early through good communication and clear documentation. But sometimes the relationship breaks down, or there’s enough risk that a clean settlement makes sense for both sides.
Where the parties agree to resolve matters formally, a Deed of Settlement may be used to record the terms (including payments, confidentiality, and the “full and final” nature of the agreement). This is one area where getting tailored legal advice is especially important, because a settlement document needs to be fit for purpose and properly executed.
If you’re an employer and you’re planning (or already in) a restructure, it’s often worth speaking with an employment lawyer early. It’s usually far easier to set the process up correctly at the start than to repair it after the fact. If you need support, redundancy advice can help you map out a fair process, draft the right communications, and reduce the risk of a personal grievance.
Key Takeaways
- In New Zealand, redundancy pay is not automatically required by law in every case, but it may be owed if it’s included in an employment agreement, policy, or collective agreement.
- Redundancy entitlements often include notice (or payment in lieu), final wages, and payment of outstanding annual leave under the Holidays Act 2003.
- A genuine redundancy is about the role no longer being needed for legitimate business reasons, not about performance or personality issues.
- A fair process matters just as much as the commercial reason: employers must consult in good faith, give employees a real opportunity to respond, and consider alternatives like redeployment.
- Common risk areas include unclear selection criteria, predetermined outcomes, poor documentation, and incorrect final pay calculations.
- If a redundancy is disputed (or you want a clean outcome), documenting an agreed resolution properly can prevent future claims and uncertainty.
If you’d like help running a redundancy process the right way, or you’re not sure what redundancy entitlements apply in your situation, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
