Do we need to include vehicle allowances when calculating redundancy pay?
We start with the position that the National Employment Standards (NES) under the Fair Work Act 2009 (the Act) would not require the inclusion of vehicle allowances when calculating redundancy pay.
However, the influence of other industrial instruments and the exact manner in which the vehicle allowance has been arranged in the relevant employee’s remuneration package can change this position. Further, we note that the NES calculates notice of termination in a different way.
According to the NES, an employee whose employment is terminated due to redundancy is entitled to an amount of redundancy pay depending on their length of service. This amount of redundancy pay is calculated according to the employee’s base rate of pay.
According to the Act, ‘base rate of pay’ is defined as the rate of pay payable to the employee for performing their ordinary hours of work. However, this rate does not include:
It is possible for other industrial instruments such as awards, enterprise agreements or contracts to contain more generous entitlements for redundancy. It is important to check these before calculating an employee’s redundancy pay.
Vehicle allowances that are paid to employees generally take two distinct forms:
The vehicle allowance is a per kilometre reimbursement to cover the expenses of using an employee’s vehicle for work purposes. This amount could change from week to week because the amount paid directly relates to the number of kilometres that the employee has actually driven.
This allowance may be seen as a ‘monetary allowance’ under the meaning of ‘base rate of pay’ as it is often specifically prescribed in awards and can be separately identified as distinct from the employee’s usual rate of pay for performing ordinary hours. Because of this, such a vehicle allowance would not be included in calculating an employee’s redundancy pay at their base rate of pay.
The vehicle allowance is a flat amount that is paid each week. It is intended to cover the expected costs of running a vehicle. This amount is paid regardless of whether or not the employee actually incurs the expenses and does not vary.
If this vehicle allowance is separately identified from the employee’s rate of pay for performing their ordinary hours, then it would not be considered to be part of the employee’s base rate of pay. Therefore, it would not be included when calculating an employee’s redundancy pay.
However, if the vehicle allowance is not separately identified from an employee’s wages or salary (for example, if the vehicle allowance is not separately identified in a contract or on the employee’s payslip), then it is likely that it would be regarded as part of an employee’s base rate of pay under the Act for the purposes of redundancy pay.
While the NES states that redundancy is paid at the base rate of pay, it is important to remember that notice of termination is not. Notice of termination is paid at the employee’s full rate of pay which, according to the NES, is the rate of pay payable to the employee including all of the following:
Once again, the industrial instruments that cover an employee may have different ways of calculating notice of termination which may be more generous than the NES.
To discuss this topic further, please contact us or call the Ai Group Workplace Advice Line on 1300 55 66 77.
