Redundancy is a situation where an employee’s job is no longer required due to changes in business operations.
Their redundancy calculation will depend on a variety of factors, such as the employee’s age, employee’s length of service, the size of the business and any specific rules which may apply under the relevant industrial instrument.
So how does payroll apply redundancy rules for employees who have reached the pension age?
Where the employee has reached pension age at the time of termination, the redundancy is not considered as a genuine redundancy.
A non-genuine redundancy occurs when the employee has reached the pension age or older on the day of dismissal.
Here are some steps to apply in payroll:
- If an employee’s job is being made redundant, you need to refer to the age of the individual at the time of the redundancy.
- Refer to the ‘pension age’ chart to see if they have reached the pension age or not.
- If they are less than the pension age, then they are eligible for the tax concessions of a genuine redundancy.
- If they are at, or over the pension age, then they are not eligible for the concessions of a genuine redundancy.
Table 1.1: Pension age for men and women (the Social Security Act 1991):
|Date of Birth||Age pension qualifying age|
|1 July 1952 to 31 December 1953||65 years and 6 months|
|1 January 1954 to 30 June 1955||66 years|
|1 July 1955 to 31 December 1956||66 years and 6 months|
|On or after 1 January 1957||67 years|
Here are some examples following the above steps:
Angus was born on 1 August 1952 and is 69 years of age at the time of redundancy.
Angus is well over the pension age according to table 1.1. As a result, Angus is not eligible for the concessions of a genuine redundancy. Any items, which would have been lump sum D, now becomes an excluded ETP (code R).
Angus has a remaining annual leave and long service leave balance to be paid out as well. Because the balance was accrued from 18/8/93, it will be taxed at marginal rates like a resignation.
Tips for payroll:
The pension age chart is not the same as the preservation age chart.
- The pension age chart is used to determine if an employee is eligible for the concessions of a genuine redundancy
- The preservation age chart is used to determine the tax on an ETP.
I thought the age criteria was 65 at the time of redundancy?
On 29 October 2019, changes to the age employees can access concessional tax treatment for genuine redundancy, and early retirement scheme payments became law. The age-based limit of 65 years old was changed to the age pension age at the time of redundancy.
To view the legislation which received royal assent on 29 October 2019:Treasury Laws Amendment (2019 Measures No. 2) Bill 2019