There are many things to organise when selling your baking business, such as transferring employees and signing all key documents. A common question that we receive from both employee and business owner is “What happens to my employees’ entitlements”? The answer depends upon the negotiations with the purchaser of the business.
If the purchaser does not agree to transferring employees during the sale negotiations, the existing employer, will be liable to pay out all accrued annual leave and long service leave (depending upon length of service). If you are unable to give them the amount of notice of termination required by their contract or Award (whichever is highest), you will also have to pay “in lieu” of the notice not provided. If you employ 15 or more staff, you will also have to pay severance pay in accordance with the National Employment Standards.
If the purchaser does agree to transferring employees, the existing business owner won’t have to pay the employees accrued leave entitlements, but will still have to ensure to either provide them with the correct amount of notice of termination or pay them in lieu of that notice.
In these cases, it is normal for the sale contract to contain a provision that the seller will transfer to the purchaser 70% of all leave accruals for transferring employees on the date of settlement. What normally happens is that the seller discounts the purchase price by that amount, or in other cases, agrees to not charge the purchaser for the stock in hand provided that this roughly equates to the value of the accruals.
The reason only 70% of the value of the accruals is transferred is because this takes into account the fact that many employees will not use all of their sick leave entitlements or stay with the employer long enough to actually take long service leave. Allowing for the ‘swings and roundabouts’, this means that the purchaser doesn’t have to find significant funds at the start of their new operation to cover leave entitlements.
If you are purchasing a bakery, remember to consider carefully the issues associated with transferring employees from existing businesses and recognising their prior service. It will certainly make it easier to operate from “Day 1” with trained and experienced staff, but it will also mean that those staff are now deemed to have worked for your business for the total length of their employment. This effects their entitlements to ‘notice of termination’ and severance pay entitlements if you need to make a position redundant early on.
Purchasers also have the option of transferring employees but not recognising their prior service with the seller’s business. In this case, the purchaser must advise the employee in writing that their service with the seller’s business will not be recognised as service with the purchaser for the purposes of the National Employment Standards. The seller will then have to pay out all entitlements upon termination and the employees commence with the purchaser as “new” employees with no accruals whatsoever. This option will also result in the seller having to pay severance pay to their employees as they have been made “Redundant” and the seller was not able to obtain “acceptable alternative employment”.
We have reproduced the severance pay schedule from the National Employment Standards below:
| Period of continuous service | Redundancy pay |
| At least 1 year but less than 2 years | 4 weeks |
| At least 2 years but less than 3 years | 6 weeks |
| At least 3 years but less than 4 years | 7 weeks |
| At least 4 years but less than 5 years | 8 weeks |
| At least 5 years but less than 6 years | 10 weeks |
| At least 6 years but less than 7 years | 11 weeks |
| At least 7 years but less than 8 years | 13 weeks |
| At least 8 years but less than 9 years | 14 weeks |
| At least 9 years but less than 10 years | 16 weeks |
| At least 10 years | 12 weeks* |
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