Reducing hours in a job can trigger redundancy

The Full Federal Court recently had to determine whether a redundancy payment received by an early learning centre employee was a genuine redundancy payment and therefore subject to concessional tax treatment (Commissioner of Taxation v Casal [2026]).

The concessional tax treatment given to a genuine redundancy payment requires the payment to be received by an employee who is dismissed from employment because the employee’s position is genuinely redundant.

The employee worked part-time in an early learning centre assistant role for 34.56 hours per week. The employer notified her that it wished to reduce the part-time hours performed in the role to 28.5 or 21.5 hours to be worked over 4 days a week. The employer offered the employee a redundancy payment if she did not wish to be redeployed to the new role.

The Court ruled that, to determine whether there is a genuine redundancy of a position for the purposes of tax law you compare what was required to be performed by the employee in that position before the claimed redundancy, and what was required to be performed afterwards, to assess whether the fact and degree of change is significant. In this case, the Court decided the reduction in the hours worked by, and remuneration paid to, the employee, compared with the previous role the employee performed, was significant.

The Court rejected the argument that hours and remuneration did not constitute the functions, duties and responsibilities that comprise the position. The degree of reduction in hours and therefore remuneration represents a significantly reduced role, performed on different days of the week. This was sufficient to alter the complexion of the position, such that it no longer resembles the previous role. The employer no longer desired to have the previous part-time role of 34.56 hours per week performed by anyone, as opposed to a part-time role of 28.5 or 21.5 hours per week.

A significant element of this decision is the fact that there was no material change to the skills and duties performed by the employee. The Court observed that, in assessing the quality of the change, a 20% and 40% reduction in hours/remuneration might not yield the same result in different circumstances. For instance, a substantive change that required an employee to concentrate on half the breadth of the operations of the employer’s business with a corresponding increase in the depth of the operations for which they could remain responsible might not be a redundancy.

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