The days of large redundancy payouts due to employer insolvency may soon be over.

In the 2014 Federal Budget, the government has announced a reduction to the Fair Entitlements Guarantee (FEG), which guarantees certain unpaid employee entitlements if their employer becomes insolvent.

Employees_entitlement_450px

Previously, redundancy pay was capped at four weeks for every full year of service. But from 1 January 2015, it is proposed that the maximum payment for redundancy pay under the FEG scheme be 16 weeks.

This change brings the FEG scheme into line with the maximum set by the National Employment Standards contained in the Fair Work Act 2009 (Cth).

According to the government, this will save $87.7 million over four years—$10M in 2015-16, building to $29.5M by 2017-18.

They’ll also stop indexing the maximum weekly wage of $2,451 (used to calculate entitlements for people earning above that maximum) until 30 June 2018 to achieve further savings.

However, these changes will apply only to liquidations and bankruptcies that occur on or after 1 January 2015.

And some things haven’t changed. Employees claiming an entitlement above the maximum set by the National Employment Standards will still have the right as unsecured  priority creditors to recover any outstanding entitlements when their employer’s business winds up.

If you have any questions about these proposed changes and how they could affect your clients, don’t hesitate to get in touch with us.

Note: Also refer to “Safe But Slow: Pros and Cons of the Employee Entitlements Safety Net”, which we published on 4 April 2014.