Employees and selling or closing your business
When you close your business, your employees will have to be let go.
When you sell your business, your employees may either:
- transfer with the business to the new owner, or
- end employment with the business.
If employees transfer with the business
If your employees are to be transferred with the business, you'll need to:
- provide up to date employee records to the new owner
- notify the new owner of any contractual, leave, financial and legal obligations you have with your employees
- work out with the new owner what obligations you'll be responsible for and what obligations will be transferred to the new owner
- provide your employees with notice of ending employment and let them know that they'll need to sign a new contract with the new owner that will be effective from the date of the new ownership.
There are some employee entitlements that the new owner must recognise and others that the new owner doesn't have to recognise. Find out more about what is required when businesses change hands on the Fair Work Ombudsman website.
A change of ownership ends an employee's position with you, so you must give notice or provide payment in lieu of notice to all employees. If a transfer of business occurs before the notice period ends, then you must still pay the rest of the notice period to your employees. Check out the Fair Work Ombudsman's website for an overview of what happens when businesses change owners.
If you let your employees go
Letting go of your employees can be difficult, whether it's because you're closing your business or because you're selling and the new owner doesn't need them. Good communication is key to making the time easier for both yourself and your employees.
You may wish to talk to your employees straight away, and explain the situation to them. No matter how you decide to tell them about it, you are required by law to give them official notice in writing.
You'll also need to pay out any entitlements your employees may have.
How to give notice
You must give written notice to your employees by either:
- delivering the notice personally
- leaving the notice at your employee's last known address
- sending the notice to your employee's last known address by pre-paid post.
You must provide your employees with the right amount of notice of ending employment (also known as a notice period). The notice period will vary depending on how long your employee has been working for you, and the type of employee they are (e.g. you don't need to give a notice period if your employee is casual).
You can also choose to pay out the notice, which must be the amount equal to the full amount the employee would've been paid if they worked until the end of the notice period.
For example, if the required notice period is two weeks, you may decide to pay out the two weeks to the employee and let them finish early, rather than requiring them to continue at the workplace for the two week period.
Find out more about notice periods on the Fair Work Ombudsman website.
Paying out entitlements
Whether your employees transfer to a new owner or cease employment with the business, there are some entitlements, including any outstanding wages and any accrued leave, that you need to pay out.
If your employees are transferring to a new owner, the entitlements you need to pay out will depend on what you have negotiated with the new owner. There are some employee entitlements that the new owner must recognise and others that they don't have to recognise. If they choose not to recognise some entitlements, you'll have to pay those entitlements out.
The final entitlements you need to pay your employees will vary depending on a number of factors, including:
- the terms of your existing contract
- the relevant Modern Award
- the number of employees your business has
- whether the employee is entitled to redundancy
- the state your employee is employed in (if long service leave is payable).
Read the Fair Work Ombudsman's final pay information to find out how to finalise pay for your employees.
Employment termination payments (ETP)
You'll also need to pay ETPs if your employees are eligible. An ETP may include:
- payment in lieu of notice
- a gratuity or 'golden handshake'
- compensation for the loss of a job
- unused rostered days off
- unused sick leave.
Find out more about taxation of termination payments on the Australian Taxation Office (ATO) website.
Finalising taxes for employees
Whether you've sold or closed your business, there are also a number of tax issues that you need to finalise for your employees. These can include:
- fringe benefits tax (FBT)
- pay as you go (PAYG)
- any tax to be deducted from employment termination payments.
Visit the employee obligations checklist on the ATO website for more information on what you need to do when your employees cease employment.
Supporting your employees
Keep in mind that some employees may find the change stressful. Communication is key! To support them, consider:
- giving them as much notice as possible so they have time to think about their options.
Treating your employees fairly will help to ensure they continue to work efficiently and give you plenty of notice if they move on to new jobs.
What to do...
- Visit the Fair Work Ombudsman website for more information on ending employment.
- Check out the ATO website to learn more about your workers and your tax and super obligations.
- Read the Fair Work Ombudsman's Consultation and cooperation in the workplace guide to learn more about resolving disputes in the workplace.
- Contact the Fair Work Ombudsman if you have questions about employment law or resolving disputes.