An Employer's Guide To Voluntary & Forced Redundancies

In New Zealand, redundancy can be lawful if the role is genuinely no longer needed and you follow a fair, good faith process before making a final decision. Voluntary redundancy is an invitation for employees to put their hand up; forced redundancy is where you select and exit affected employees after consultation.

There's no automatic statutory redundancy pay in NZ. Whether you must pay redundancy compensation usually depends on the employment agreement, your policies, or the package you agree to offer, but notice, final pay and holiday entitlements still need to be handled correctly.

Redundancy is one of those business decisions no employer wants to make, but sometimes it's the only realistic option to keep your business viable. The safest approach is to document the business reason, consult properly, consider alternatives, and communicate with care.

What Counts As A Genuine Redundancy In New Zealand?

Redundancy happens when a job is no longer needed for genuine business reasons. It's about the role being disestablished or materially changed, not about the employee personally.

Common examples of genuine redundancy include:

• a restructure that removes duplicate roles
• a downturn in work requiring fewer staff in a particular function
• outsourcing or automation meaning certain tasks are no longer required internally
• a site closure or business shutdown
• a change in operating model, such as merging departments or centralising support functions

In New Zealand, redundancy processes are heavily influenced by the duty of good faith under the Employment Relations Act 2000. In practical terms, that means you generally need to be transparent about the reasons for change, give affected employees relevant information, consult genuinely before making a final decision, consider feedback with an open mind, and run a fair selection process if more than one person may be impacted.

If you're unsure how redundancy works, it can help to start with a plain-English overview of redundancy and how it works in practice.

Important: for most employees, a redundancy should be based on a genuine business reason and supported by a fair process. Different rules may apply to employees earning at or above the specified remuneration threshold, so employers should check the 2026 high-income earner rules before relying on any exception.

A redundancy can still be challenged if the process is unfair. Common examples include pre-deciding the outcome, failing to consult, not providing enough information, or using redundancy to remove a problem employee without following a proper performance or disciplinary process.

You should also be careful if your restructure involves replacing employees with contractors. From 21 February 2026, the Employment Relations Act changes include specified contractor gateway rules that can help determine when a person is properly treated as a contractor. If you want to engage contractors after a restructure, make sure the arrangement is genuine, documented, and consistent with how the work will actually be performed.

Voluntary Vs Forced Redundancy: What Is The Difference?

Most employers use the word redundancy as a general label, but there are two common pathways:

• Voluntary redundancy: you invite employees to apply to leave, usually with a redundancy package or incentive.
• Forced redundancy: you identify roles that will be disestablished or reduced, then employees are selected and exited through a formal process.

If you're deciding between the two, it helps to understand the practical pros and cons in real workplaces. The difference is explained clearly in voluntary vs forced redundancy.

When Voluntary Redundancy Can Make Sense

Voluntary redundancy is often used when you need to reduce headcount but want to minimise conflict, there are multiple similar roles that could potentially be removed, or some employees may already be considering leaving, retiring, relocating or changing careers.

That said, voluntary doesn't mean informal. You still need a structured and fair approach, including clear rules for who can apply, whether you can decline an application, when employment would end, and what package would be paid.

When Forced Redundancy May Be Unavoidable

Forced redundancy is more likely where a specific role is being removed entirely, a team is being scaled down and you need to retain particular skills, there are fewer remaining positions than affected employees, or your business can't meet its operational needs by relying on volunteers.

Forced redundancy usually carries more legal risk because it can involve selection decisions, emotional impact, and personal grievance risk. The risk is manageable, but only if the business rationale, consultation and selection criteria are clear.

What Is The Redundancy Process In NZ?

A fair redundancy process is usually less about perfect paperwork and more about doing the fundamentals consistently: transparency, consultation, genuine consideration of alternatives, and clear written records.

Here is a practical redundancy process NZ employers commonly follow.

1. Confirm The Business Rationale: identify the commercial problem you're trying to solve, such as reduced revenue, duplicated roles, automation, loss of a contract, or a change in operating model.
2. Gather Supporting Information: collect the budgets, forecasts, workload data, organisational charts or other evidence that supports the proposal.
3. Check Employment Agreements: review notice periods, consultation clauses, redundancy compensation clauses, redeployment obligations and any collective agreement obligations.
4. Prepare A Proposal, Not A Decision: explain what is being proposed, why, which roles may be affected, and what the proposed new structure looks like.
5. Invite Feedback: give affected employees reasonable time to consider the proposal, ask questions, get advice and bring a support person or representative to meetings.
6. Consider Alternatives: look at redeployment, reduced hours, reduced overtime, recruitment freezes, voluntary redundancy, or other cost-saving measures where appropriate.
7. Apply Selection Criteria If Needed: if only some roles will remain, use criteria that are relevant, objective, documented and consistently applied.
8. Make And Confirm The Decision: only confirm the outcome after feedback has been genuinely considered.
9. Manage Notice And Final Pay: confirm the last day, whether notice will be worked or paid out, and what final pay will include.

If your change is really about reduced workload rather than removing roles entirely, you may want to consider alternatives like reducing staff hours, but only where it's legally available and done through proper consultation.

Your employment agreements set the baseline rules for notice periods, consultation expectations and redundancy compensation. If you're hiring or updating documents as part of a restructure, it's worth ensuring your Employment Contract terms are current and consistent with how your business actually operates.

What Should A Redundancy Proposal Letter Include?

A redundancy proposal letter should usually say that no final decision has been made, explain the business reasons, describe the proposed new structure, identify how the employee's role may be affected, set out the consultation process and feedback deadline, invite the employee to bring a support person or representative, and explain the possible next steps.

A lawyer should tailor the letter to your specific restructure, especially where several employees are affected, selection criteria are needed, or you're offering a voluntary redundancy package.

How Do You Get Voluntary Redundancy Right?

Employees often search for how to get voluntary redundancy, but from an employer's perspective the better question is how to offer it without creating confusion or unfairness.

A voluntary redundancy process usually works best when you make the rules clear from the start. Your invitation should cover who is eligible to apply, whether applications are confidential, the deadline, the proposed package, whether you can accept or decline applications at your discretion, how you'll decide between applications if too many people apply, and the proposed end date and handover expectations.

You don't have to accept every volunteer if losing that person would harm the business. For example, if your only payroll specialist volunteers but you still need payroll expertise in-house, you may be able to decline that application if your process and criteria allow for it.

Voluntary redundancy packages vary. Some employers offer only contractual entitlements, while others offer an additional ex gratia amount to encourage applications. Avoid promising a package until you have checked the employment agreement, any redundancy policy, the payroll treatment, and the commercial budget.

Be careful with language. If an employee is pressured into applying, or if the business has already decided they're leaving, the redundancy may not look voluntary. Keep the invitation genuine, give employees time to consider it, and document the employee's application and your acceptance.

What Are Your Redundancy Pay And Notice Obligations?

Redundancy pay NZ rules are different from some overseas systems. New Zealand doesn't have a universal statutory redundancy payout that applies to every employee. The key question is what the employment agreement, workplace policy, collective agreement or agreed package says.

Notice Periods

The notice period is usually set out in the employment agreement. If the agreement is silent, reasonable notice may apply, but what is reasonable depends on the employee's role, seniority, length of service and the circumstances.

Sometimes employers ask about payment in lieu of notice. This may be possible, but it depends on the employment agreement and the circumstances. If you want to end employment immediately and pay out the notice period, check the contract first.

Redundancy Compensation

Redundancy compensation is usually payable only if it's set out in the employment agreement, workplace policy or collective agreement, agreed as part of a voluntary redundancy or negotiated package, or part of an established practice that has created a clear expectation.

Even where there's no redundancy compensation clause, employers usually still need to provide notice or payment in lieu where available, and should use a fair process unless a lawful exception clearly applies.

Final Pay

Final pay typically includes salary or wages up to the termination date, payment for annual holidays and holiday pay under the Holidays Act 2003, any alternative holidays, and any contractual or agreed redundancy payments.

As an employer, you should also be mindful of the Wages Protection Act 1983, particularly around deductions from wages. Don't assume you can deduct overpayments, equipment costs, loans or training costs from final pay without checking that you have a lawful basis and the right consent.

Final pay calculations can get technical, especially where variable hours, commissions, bonuses or parental leave are involved. Coordinate with your payroll provider or accountant, and get legal input if you're offering a tailored package.

Worked Example: Voluntary Redundancy Vs Forced Redundancy

Imagine your Auckland ecommerce business has 12 employees. Sales have dropped, software has automated part of the admin workflow, and you need to reduce the customer support team from 4 coordinators to 2.

Each coordinator earns $70,000 a year. Their employment agreements require 4 weeks' notice and don't contain a redundancy compensation clause. You prepare a written proposal explaining the downturn, the automation changes, the proposed new structure, and the need for 2 customer support coordinator roles instead of 4.

Before selecting anyone, you offer voluntary redundancy to the 4 coordinators. You make it clear that applications may be accepted or declined based on the future skill needs of the business. You offer 4 weeks' notice plus an additional 2 weeks' pay as an incentive.

One coordinator applies. They earn $70,000, so their weekly pay is approximately $1,346 before tax. Their package is 4 weeks' notice, equal to about $5,384 before tax, plus a 2 week voluntary redundancy incentive, equal to about $2,692 before tax, plus accrued holiday pay calculated through payroll.

You still need to remove one more role. You consult on the selection criteria, then assess the remaining 3 employees against relevant criteria such as product knowledge, customer response quality, systems capability, and availability for the new roster. You document the assessment, meet with the affected employee, consider their feedback, and only then confirm the redundancy in writing.

The outcome isn't risk-free, but it's much stronger than simply choosing 2 people and announcing the decision. You have a documented business reason, a genuine consultation process, a voluntary option, objective selection criteria, and a clear paper trail.

Common Redundancy Risks And How To Avoid Them

Even employers with good intentions can run into trouble during redundancies, usually because things moved quickly, communication got messy, or the business tried to simplify the process too much.

Predetermining The Outcome

If you have already decided who is going, consultation can become a box-ticking exercise. Treat your proposal as genuinely open to change.

Using Redundancy To Deal With Performance

If the real issue is performance, redundancy is the wrong tool. You'll usually need a proper performance management process instead.

Unclear Or Unfair Selection Criteria

Use criteria linked to future role requirements, avoid vague labels such as attitude or flexibility unless carefully defined, and keep written notes.

Forgetting Redeployment

Before confirming redundancy, consider whether affected employees can be redeployed into vacant roles, new roles, or other suitable positions with reasonable training.

Poor Communication With The Wider Team

Redundancies don't only affect the people leaving. Plan your communications carefully, keep messaging consistent, and think about what you'll say to the wider team after decisions are made without breaching anyone's privacy.

Not Having The Right Documents

Redundancy often needs more than one letter. You may need a restructure proposal letter, meeting invitation letters, voluntary redundancy invitation documents, selection outcome letters, final redundancy confirmation letters, updated role descriptions and organisation charts.

Having the right suite of documents can make the process clearer and much easier to manage consistently. In more complex situations, employers often use an Employee Termination Documents Suite so the process doesn't rely on ad-hoc drafting under pressure. If you want a broader sense of where your employment documents sit alongside your wider business compliance, a Legal Health Check can help you spot gaps.

Key Takeaways

• For most employees, redundancy should be based on a genuine business reason and supported by a fair process.
• Voluntary redundancy can reduce conflict, but it should have clear rules around eligibility, packages, discretion and timing.
• Forced redundancy usually needs careful consultation, objective selection criteria, redeployment consideration and strong documentation.
• New Zealand doesn't have universal statutory redundancy compensation, but notice, final pay and holiday entitlements still need to be handled correctly.
• If your restructure involves contractors from 21 February 2026, check the specified contractor gateway rules and make sure the arrangement is genuine and documented.

If you'd like help with planning a redundancy process, voluntary redundancy offers, selection criteria and redundancy letters, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.