Voluntary Redundancy In New Zealand: Employer Guide

When business conditions change, reducing headcount can feel like one of the hardest calls you’ll ever make as an employer.

That’s why many New Zealand businesses look at voluntary redundancy as a “softer” option than a straight restructure with compulsory redundancies. It can protect morale, reduce the risk of disputes, and help you move quickly when you genuinely need change.

But voluntary redundancy isn’t a legal shortcut. If you offer it without a clear plan (or treat it like a performance tool), you can end up with the same legal risk you were trying to avoid - plus a few extra headaches around fairness, selection, and documentation.

Below, we break down what voluntary redundancy is, when it works, how to run it properly in New Zealand, and what to document so your business is protected from day one.

What Is Voluntary Redundancy (And How Is It Different From “Normal” Redundancy)?

Voluntary redundancy is where you ask for expressions of interest from employees who may be willing to leave their role due to a business-driven change (for example, a restructure, a downturn, or a change in operational needs).

Instead of you selecting who will be made redundant, employees can “put their hand up”. You then decide whether to accept those applications.

Redundancy Still Needs To Be Genuine

A key point: even if it’s voluntary, redundancy still needs to be a genuine redundancy. In plain terms, that means the role (or the employer’s need for the role) is actually being disestablished or reduced for legitimate business reasons.

Voluntary redundancy isn’t a way to:

• remove an underperforming employee without using a proper performance process
• avoid disciplinary steps
• push someone out because the relationship is strained
• “swap” a person out for someone else while keeping the same role in substance

If what you really need is to address conduct or performance, you’re usually better off getting advice early and following a fair process - rather than trying to fit it into a redundancy framework.

Voluntary Redundancy vs Resignation

Voluntary redundancy is not the same as an employee resigning. Redundancy is employer-initiated (a business decision), whereas resignation is employee-initiated.

This matters because redundancy typically triggers:

• consultation obligations and a fair process
• redundancy compensation (if your employment agreement or policy provides for it)
• obligations to consider redeployment (where reasonable)
• final pay calculations including leave and notice periods

Your Employment Contract (and any workplace policies) is the starting point for what you’ve agreed to around redundancy, notice, and entitlements.

When Does Voluntary Redundancy Make Sense For Small Businesses?

Voluntary redundancy can work really well for small and growing businesses - especially where you’re trying to manage change without damaging trust across a small team.

Some common situations where voluntary redundancy can be a good option include:

• Downturns or reduced demand (you can’t sustain the same wage bill)
• Operational changes (automation, outsourcing, or new systems mean fewer people are needed)
• Restructures (you’re changing how work is divided across roles)
• Closing a location or service line
• Post-acquisition integration (two teams doing the same work)

It’s Not “No-Risk” - But It Can Reduce Risk

Employers often like voluntary redundancy because it may:

• reduce the need to “select” between employees doing similar work
• lower the chance of personal grievance claims based on selection criteria
• create a sense of employee choice and dignity
• help maintain relationships with employees who stay

That said, you still need to be careful about process and communications. If employees feel pressured to volunteer (or feel the process was a “pretend choice”), it can create real legal and cultural issues.

How Do You Run A Voluntary Redundancy Process Fairly In New Zealand?

A good voluntary redundancy process is structured, consistent, and evidence-based. Even if you’re under pressure, it’s worth slowing down long enough to get the steps right.

1) Start With The “Why”: Document The Business Reasons

Before you ask for volunteers, you should be clear internally on:

• what has changed in the business (financial, operational, strategic)
• what roles or functions are impacted
• how many positions you’re trying to reduce (if known)
• what alternatives you have considered (cost cuts, reduced hours, redeployment)

This isn’t about creating paperwork for the sake of it - it’s about being able to show the decision was made for genuine business reasons, not personal ones.

2) Identify The “Selection Pool” (Even If It’s Voluntary)

In practice, you’ll usually offer voluntary redundancy to:

• a specific team or department
• employees performing a particular type of work
• roles likely to be reduced or disestablished

Be careful about limiting the offer to a particular person unless you have a clear, justifiable reason. If the “voluntary” offer is only presented to one employee, it can look like you’ve already decided they’re the problem.

3) Communicate Clearly (And Don’t Apply Pressure)

Your communication should explain:

• the business context and the proposed change
• what voluntary redundancy means in your workplace
• how employees can submit an expression of interest (EOI)
• the timeframe to respond
• that volunteering is genuinely optional and will not be held against anyone
• that the business may accept or decline EOIs depending on operational needs

One common pitfall is informal “chats” that unintentionally pressure someone into volunteering. Keep your messaging consistent and measured.

4) Allow Feedback And Consultation Where Relevant

Even if you’re aiming for a voluntary process, restructures often still require consultation. A fair process typically involves giving employees an opportunity to respond to proposals that affect their employment.

Because redundancy processes can become legally sensitive quickly, it’s often worth getting redundancy-specific advice early - particularly if you’re changing job descriptions, disestablishing positions, or creating new roles in the process. Sprintlaw can help with Redundancy Advice tailored to your situation.

5) Assess EOIs Against Business Needs (And Keep Notes)

Just because an employee volunteers doesn’t mean you must accept it.

For example, you might decline an EOI if:

• the employee has critical skills you can’t readily replace
• their role isn’t actually one you can reduce
• accepting would create major operational risk

Whatever you decide, keep brief notes of:

• who applied
• what you considered
• why you accepted/declined

This helps if decisions are later questioned (and also helps you stay consistent if you receive multiple EOIs).

Do You Have To Pay A Voluntary Redundancy Package In NZ?

In New Zealand, there’s no universal legal rule that says employers must pay redundancy compensation in every redundancy situation.

Instead, redundancy compensation depends on what you’ve agreed to in:

• the employment agreement
• any collective agreement (if applicable)
• workplace policies or past established practice (in some situations)

That said, many employers choose to offer an incentive (a “package”) to encourage volunteers, particularly where speed and certainty matter.

Common Terms In A Voluntary Redundancy Offer

A voluntary redundancy offer might include:

• an ex gratia payment (an additional payment offered as an incentive)
• payment for notice (working notice or pay in lieu, depending on the agreement and what’s agreed)
• payment of outstanding entitlements (holiday pay, alternative holidays if applicable, etc.)
• agreed end date
• a settlement-style confidentiality term (careful - this needs to be done properly)
• return of company property and handover obligations

If you’re considering paying out notice rather than having the employee work it, make sure it aligns with the employment agreement and is documented properly. It’s common to formalise this as payment in lieu of notice.

Tax treatment: build this into your planning

Redundancy and ex gratia payments can have different tax treatment depending on what the payment is for (for example, wages/notice, holiday pay, or a true additional compensation amount). Make sure you confirm the correct PAYE and reporting treatment with your payroll provider or accountant, or get tax advice before you finalise a package.

Be Careful With “Standard Packages”

It’s tempting to set a simple “one size fits all” package. But two employees may have very different:

• notice periods
• pay structures (salary vs wages, allowances, commissions)
• leave balances
• restrictions or obligations in their agreements

If you want consistency but still need flexibility, it can help to create a written voluntary redundancy offer template and a checklist for what must be reviewed before an offer is finalised.

What Are The Biggest Legal Risks With Voluntary Redundancy?

Voluntary redundancy can reduce some risks, but it also creates its own “watch-outs”. Here are the issues we most often see for NZ employers.

Employees Feeling Pressured To Volunteer

If an employee later argues they were pushed into volunteering (for example, through repeated comments, implied threats, or being isolated), the voluntary aspect can unravel fast.

To manage this risk:

• keep communications consistent and preferably in writing
• train managers on what to say (and what not to say)
• avoid targeting a single person with the “option”

Offering Voluntary Redundancy When The Role Isn’t Really Redundant

If your business still needs the role - and you plan to refill it shortly after - you may be exposed to claims that the redundancy wasn’t genuine.

This comes up a lot when a business says the role is redundant, but then:

• creates a very similar role with a different title
• rehires someone else to do substantially the same work
• keeps the duties but spreads them across others without a genuine restructure rationale

A genuine restructure can still involve new roles, but the “why” and the changes need to stack up.

Unfairness Between Employees (Especially Where Only Some Can Volunteer)

Sometimes only one person’s EOI is accepted, or the package is offered to some employees and not others.

That may be justifiable (for example, based on operational needs), but you’ll want a clear, business-based explanation and a consistent approach.

Getting The Documentation Wrong

Even when everyone is on good terms, messy paperwork can cause disputes later over end dates, final pay, restraints, or confidentiality.

As a baseline, your redundancy process should align with your existing employment documentation. If your agreements are outdated, this is often the moment you discover gaps. Having a clear Workplace Policy framework (and up-to-date employment contracts) makes change management significantly smoother.

What Documents Should You Put In Place For Voluntary Redundancy?

You don’t need to overcomplicate things, but you do need the right documents so the outcome is clear and enforceable.

Voluntary Redundancy EOI Document (Or Form)

This can be a simple form or written process that confirms:

• the employee is expressing interest voluntarily
• they understand the business may accept or decline
• the submission is not a resignation

Voluntary Redundancy Offer Letter

If you accept an EOI, you’ll usually issue a formal offer letter confirming:

• the proposed termination date
• notice arrangements (working notice or pay in lieu)
• the redundancy compensation/ex gratia payment (if any)
• how final pay will be calculated
• return of property and handover requirements

Settlement Documentation (Only If Needed, And Done Properly)

Sometimes businesses want “clean break” terms - for example, confidentiality and a mutual non-disparagement term.

This is where you should be careful. In New Zealand, full and final settlements generally need to be handled through a proper settlement process to be enforceable and to reduce the risk of later claims. In practice, that often means making sure the employee has a genuine opportunity to take independent advice, and (where appropriate) using a mediator-facilitated approach through MBIE/Employment Mediation, so you can record binding “full and final” terms.

If you’re heading down this track, it may be appropriate to use a Deed of Settlement - but the structure and context matters, so it’s worth getting advice before you present anything to an employee.

Internal Checklist For Managers

For small businesses, a simple internal checklist can be gold. It helps you keep the process consistent (especially if you’re juggling operations while managing change).

Your checklist might include:

• business case prepared and approved
• communications drafted
• timeline set (EOI period, decision date, end dates)
• template letters prepared
• final pay calculations reviewed
• handover and equipment return plan confirmed

Consider The “After” Documents Too

Voluntary redundancy often happens alongside other changes: new reporting lines, new responsibilities, role changes, or reduced hours for remaining staff.

If you’re changing the terms of employment for remaining employees, you may need to document those changes properly rather than relying on informal chats. Where hours are being reduced, it’s important to handle it as a change to terms and consult appropriately - many businesses start by sense-checking their approach against guidance like reducing staff hours.

Key Takeaways

• Voluntary redundancy lets employees opt in to redundancy, but it still needs to be based on a genuine business reason and handled with a fair process.
• You should document the business rationale before inviting expressions of interest, so it’s clear the decision is operational (not personal).
• A voluntary process can reduce selection disputes, but it can create new risks if employees feel pressured or if the role isn’t truly redundant.
• Redundancy compensation in NZ depends on the employment agreement, policies, and what you offer - many businesses choose to offer an incentive package to encourage volunteers.
• Use clear documents (EOI form, offer letter, and where appropriate a deed) so notice, final pay, end dates, and conditions are not left open to confusion.
• If you include confidentiality or “clean break” terms, make sure any settlement is handled through an appropriate NZ settlement process so it’s enforceable and procedurally fair.
• If your restructure includes changes for remaining staff, make sure any changes to terms (like hours) are consulted on and documented properly.

If you’d like help running a voluntary redundancy process or preparing the right documents for your restructure, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.