Employees when a business is sold: transfer of business, entitlements and what to agree

When a business with staff changes hands, their wages, leave and service are a real cost someone has to carry. This guide covers when the Fair Work transfer of business rules apply, what carries over, and what to agree before settlement. For the wider picture, see the legal and tax steps in a business sale. It is general information, so get advice on your own sale.

When the transfer of business rules apply

The Fair Work Ombudsman (FWO) says a transfer of business happens when all three of these apply:

• Timing. The employee starts working for the new employer within 3 months of their job with the old employer ending.
• Same work. Their duties are the same, or nearly the same, as before.
• A connection between the employers. For example, the old employer sells some or all of the business's assets to the new employer, or the two are associated entities (related bodies corporate, or one has a controlling interest in the other). The FWO also lists certain outsourcing arrangements between them.

When a buyer purchases the business's assets from the seller, that sale can provide the connection. An employee who moves across in a transfer of business is a transferring employee. If you are instead buying the company that employs the staff, ask your solicitor how these rules apply.

Which award or agreement covers them afterwards

According to the FWO:

• Enterprise agreements. A transferring employee covered by an enterprise agreement or other registered agreement stays covered by it with the new employer, until it is terminated or replaced.
• Awards. A transferring employee covered by an award switches to the award covering the new employer, if it covers their job and industry.

If the staff are on an enterprise agreement, read it during due diligence, because it comes with them. An application can be made to the Fair Work Commission, on its Form F40, for orders to vary the effect of a transferred instrument.

What carries over, and what the buyer can choose not to recognise

The FWO says the new employer must recognise service with the old employer for most entitlements, including sick and carer's leave, requests for flexible working arrangements and parental leave. Some entitlements it might not have to recognise:

• Annual leave. Accumulated leave is carried across. Where the employers are not associated entities, the new employer can decide not to recognise the earlier service, and the old employer then has to pay out the untaken annual leave.
• Redundancy. A new employer that is not an associated entity can choose not to recognise earlier service for redundancy, and the old employer then needs to pay redundancy on termination. An employee who turns down an offer on similar terms that recognises their service for redundancy, and would have been a transfer, is not entitled to redundancy pay.
• Unfair dismissal. Earlier service need not count if the employers are not associated entities and the new employer tells the transferring employee in writing, before the new job starts, that it will not be recognised.
• Notice. If a transferring employee who was given notice by the seller is later dismissed by the buyer, only service with the buyer counts towards their notice.

Long service leave differs by state and territory

The FWO says most employees get long service leave under the laws of their state or territory, which set how long they must work to qualify and how much leave they get. The rules differ, including on whether long serving casuals qualify, and some industries have portable schemes. Ask your solicitor how long service leave is treated on a sale where your staff work, and agree in the contract who bears the cost of service already built up.

Notice, redundancy, final pay and super

A sale ends each employee's job with the seller, whether or not they then work for the buyer. The FWO says the old employer must give notice or pay instead of notice, and must still pay the rest of the notice period if the transfer happens first. business.gov.au adds that notice must be in writing, whether or not staff transfer.

For staff the buyer does not take on:

• Notice. Notice is still required when a job is made redundant. The FWO's Notice and Redundancy Calculator works out minimum notice and redundancy pay under an award or the National Employment Standards.
• Redundancy. Under the National Employment Standards, an employee may be entitled to redundancy pay if they have at least one year of continuous service and their employer employs at least 15 people. So a small business employer with fewer than 15 employees generally does not have to pay it, but an award or enterprise agreement can set a different entitlement.
• Final pay. Wages owed and unused annual leave are paid out, and long service leave where it is payable.

The ATO says super guarantee must be paid on final salary and wage payments that count as qualifying earnings (from 1 July 2026) and reach the fund by the due date. Unused leave payments and employment termination payments are not qualifying earnings, so super guarantee does not need to be paid on them. The seller also finalises each employee's Single Touch Payroll data.

Employee records

The FWO says the old employer has to give the new employer the records of any transferring employee, and the new employer has to ask for them. The FWO also describes employee records as private and confidential, so ask your solicitor what payroll detail can be shared during due diligence.

Underpayments found in due diligence

Payroll checks compare what staff are paid with what their award or agreement requires, including penalty rates, overtime, allowances, leave loading and super. Any underpayments are best dealt with before settlement.

• Sellers. You were the employer when any underpayment happened. The FWO's guidance is to fix an underpayment quickly: work out the difference, talk to the employee, pay it as soon as possible and check the tax and super on the back payment.
• Buyers. If wages were too low, the true wage cost is higher and the true profit lower than the figures show, which affects value (see add-backs and normalised profit).
• Both sides. Ask your solicitors who carries legal responsibility for past underpayments, and agree in the contract how any underpayment will be handled. Small business employers can ask the FWO's Employer Advisory Service for free written advice.

What to agree in the contract

business.gov.au says the seller should work out with the buyer which obligations the seller keeps and which transfer. With your solicitors, settle:

• Offers of employment. Which staff the buyer will offer jobs to, on what terms and by when, and whether earlier service is recognised.
• Accrued entitlements. Who pays the leave built up with the seller. If the buyer takes on those balances, the cost can be apportioned and the price adjusted at settlement.
• Notice and redundancy. Who gives notice, when, and who pays for staff the buyer does not take on.
• Warranties. What the seller promises about payroll compliance, and what happens if an underpayment surfaces later.
• Telling staff. When, by whom and what they will be told.

Telling staff, and confidentiality before that

News of a sale that gets out early can unsettle staff and cost a business key people. Our guide to keeping a business sale confidential covers managing that until the deal is firm.

business.gov.au suggests giving employees as much notice of the change as possible, and says the award or agreement may have extra rules, such as consulting with staff or giving time off to look for other work. Transferring staff also need to know they will sign a new contract with the new owner.

What to agree before settlement

Use this with our due diligence checklist:

• a staff list with pay, award or agreement, start dates and leave balances
• which staff get offers, on what terms, and whether earlier service is recognised
• who pays accrued leave, and any price adjustment
• who gives notice, and who pays notice, redundancy, final pay and super
• how any underpayments will be fixed
• any enterprise agreement that will carry over
• handover of employee records
• when and how staff will be told.