Business transfers and protected employees in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
When a business transfer occurs in Australia, some employees automatically carry their entitlements — and in some cases their employment itself — across to the new employer. Whether those protections apply depends on the type of transfer, the applicable industrial instrument, and how the transaction is structured.
What counts as a business transfer
The Fair Work Act 2009 uses the term "transfer of business" with a precise legal meaning. A transfer of business occurs when four conditions are met: the old employer (the transferring employer) stops employing the employee; the new employer takes over all or part of the old employer's work; there is a connection between the two employers; and the employee starts work with the new employer within three months of leaving the old one.
The connection between employers can take several forms — the new employer acquiring or using assets previously used in the old business, the old and new employers being associated entities, or the new employer outsourcing work back from the old employer or bringing outsourced work in-house.
A share sale, by contrast, does not usually trigger a transfer of business under the Fair Work Act because the employing entity itself is what changes hands — the legal employer stays the same.
What protections transfer with the employee
When a Fair Work transfer of business occurs, the employee's service is treated as continuous. That continuity matters for a number of entitlements under the National Employment Standards (NES):
- Annual leave accrued with the old employer carries over to the new employer.
- Redundancy pay is calculated on total years of service across both employers, not just service with the new employer. The NES sets out a redundancy-pay scale based on completed years of service, starting at four weeks for one to two years and rising from there.
- Notice periods are similarly linked to total service length.
- Personal and carer's leave balances transfer to the new employer.
The old employer is not automatically off the hook for leave liabilities just because the business has been sold. Unless the contract of sale specifically addresses how accrued leave is handled — through a purchase price adjustment or direct payment to the employee — the liability may sit with the new employer by default. Buyers should always seek an accounting of all outstanding leave entitlements as part of due diligence.
Transferable instruments
When a transfer of business happens, a modern award or enterprise agreement that applied to the employee at the old employer may become a "transferable instrument" and continue to apply to the employee at the new employer. This can mean the new employer is bound by pay rates and conditions from an enterprise agreement it was never a party to — potentially for up to 12 months, or indefinitely if the agreement is not replaced.
The new employer can apply to the Fair Work Commission to have a transferable instrument cease to apply, but that takes time and is not guaranteed. If the new employer already has its own enterprise agreement covering the same work, that agreement may prevail instead — the rules here are detailed, and the outcome depends on how the instruments interact.
Practically, this means a buyer should identify every award and agreement covering transferring employees before the transaction completes, not after.
Superannuation and payroll obligations from day one
The new employer takes on full payroll obligations from the employee's first day. Superannuation must be paid at the current Superannuation Guarantee rate — 12% of ordinary time earnings from 2026 — into a complying fund. If an employee has a stapled super fund from their previous employment, the new employer is generally required to contribute to that fund unless the employee nominates a different one.
PAYG withholding must be set up correctly from the first pay event, and every pay event must be reported to the ATO through Single Touch Payroll (STP). The annual payroll finalisation deadline of 14 July applies equally to acquired employees. If a business transfer occurs mid-year, the new employer will need income statements from the old employer so that year-to-date figures can be carried forward accurately in STP reporting.
HECS/HELP repayment obligations also carry across — if a transferring employee has a study debt, the new employer must continue withholding the appropriate repayment amount based on the employee's repayment income band.
Structuring the transaction to manage risk
How a transfer is structured has real consequences for both parties. Buyers who want a clean break from a transferring enterprise agreement should take advice on transaction structure before signing. Sellers who want certainty that accrued leave liabilities have been discharged should ensure the sale contract is explicit.
In either case, the employees themselves must be told what is happening. Under the Fair Work Act, both the old and new employer have notification obligations when a transfer of business occurs. Failing to notify affected employees is not just poor practice — it can give rise to disputes about whether a redundancy has occurred, which carries its own cost.
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