Managing an employee’s road to retirement in Australia requires a structured, legally compliant and strategically planned approach. It is both a workforce planning exercise and an employee relations process. Employers who approach retirement proactively reduce operational risk, preserve corporate knowledge and support employee wellbeing.

This article outlines 8 steps for effective management of an employee’s retirement, covering key legal and practical considerations for Australian employers.

The transition to retirement is a voluntary decision

Under the Fair Work Act, there is no compulsory retirement age in most circumstances. Forcing retirement may constitute unlawful age discrimination under the Age Discrimination Act.

Accordingly, retirement discussions must be initiated sensitively and preferably by the employee. They should avoid assumptions based on an employee’s age and focus on future intentions rather than pressure to exit.

Retirement conversations should also be framed within workforce planning and succession discussions.

A best practice approach to retirement planning

A best practice approach is to incorporate career planning discussions into existing performance or development reviews, asking open-ended questions such as “What are your plans over the next few years?” rather than “When are you retiring?”

Business owners and HR leaders play a pivotal role in supporting employees through the retirement transition.

The following steps outline a compliant and supportive process for employers to follow when navigating an employee’s retirement.

Step 1 – Confirm retirement intention and timing

Once an employee indicates they intend to retire, the employer should confirm the intended final working day and the retirement date in writing, review any contractual notice requirements and consider whether accrued leave will be taken prior to termination or paid out.

Employees aged 60 to 64 may be able to access their superannuation as a regular income stream while reducing work hours. If an employee is accessing superannuation while continuing to work, this is a financial planning matter for the employee. The employer’s role is limited to managing the employment relationship.

Step 2 – Review accrued leave entitlements

Long service leave 

Long service leave (LSL) is governed by state and territory legislation (or occasionally by enterprise agreements). In Queensland, for example, LSL is regulated under the Industrial Relations Act.

Key considerations:

• Determine whether the employee has reached the qualifying period (typically 10 years, though pro-rata may apply after 7 years in some jurisdictions)
• Check whether retirement triggers pro-rata entitlements where employment ends on certain grounds
• Confirm whether LSL will be taken prior to the retirement date or paid out on termination
• Consider business continuity if extended LSL is taken immediately before retirement

Some employers encourage employees to take LSL before retirement to allow a phased disengagement. Others prefer a clean financial payout at termination. Both are lawful provided statutory requirements are met.

Annual leave 

Under the Fair Work Act, accrued annual leave must be paid out on termination. Employers may:

• Agree for the employee to take annual leave prior to their retirement date.
• Direct the employee to take annual leave in limited circumstances (consistent with awards or agreements).

Like LSL, the employer can allow a phased disengagement where annual leave is utilised by the employee to regularly work less days, e.g. 1 day’s annual leave per week.

Personal/carer’s leave 

Personal/carer’s leave does not get paid out on retirement.

Step 3 – Reduce hours by agreement

A gradual reduction in hours is often commercially and personally beneficial. This must be genuinely agreed. Employers cannot unilaterally reduce hours without risk of breach of contract or constructive dismissal.

Common models include:

• Moving from full-time to part-time employment
• Reducing days per week (e.g. from five to three days)
• Shortening daily hours
• Converting to casual employment (with caution regarding entitlements)
• Entering into a fixed-term arrangement leading to retirement

As per the previous step, reduced hours may be covered by paid leave entitlements by agreement.

Any change should be documented in writing, confirming:

• New hours of work
• Remuneration adjustments
• Superannuation implications (if known)
• Whether the arrangement is temporary or ongoing until retirement

Step 4 – Flexible working arrangements

Employees aged 55 or older have a statutory right to request flexible working arrangements under the Fair Work Act.

Requests may include reduced hours, changes in start or finish times, remote work arrangements, or compressed work weeks.

If these requests are made, employers must respond in writing within 21 days. Refusal is only allowed on reasonable business grounds and employers must provide detailed reasons for refusal.

Given retirement planning is typically foreseeable, it is recommended that employers attempt to accommodate reasonable flexibility wherever possible to support knowledge transfer and retention.

 Step 5 – Knowledge transfer and handover planning

A structured handover is critical, particularly for senior or long-tenured employees.

Best practice includes:

• Identifying key institutional knowledge
• Documenting processes and systems
• Introducing successors or redistribution of duties
• Shadowing or mentoring arrangements
• Updating procedural manuals
• Transferring client relationships

A formal transition plan may run for 3–12 months depending on role complexity.

Some organisations establish “legacy projects” where the retiring employee:

• Finalises strategic initiatives
• Mentors emerging leaders
• Leads documentation consolidation
• Assists in recruitment of their successor

This reframes retirement from departure to contribution.

Step 6 – Consider succession and workforce risk

Retirement management should sit within broader workforce planning to ensure a business is prepared. When conducting workforce planning, an employer should:

• Identify critical roles at risk of vacancy
• Assess capability gaps
• Consider whether duties can be redistributed or automated
• Align recruitment timing with the retirement date

Unexpected retirement announcements create operational risks, but proactive planning can mitigate them.

Step 7 – Final entitlements and termination

Upon retirement, the employer must ensure compliance with:

• Payment of accrued annual leave
• Payment of accrued long service leave (if applicable)
• Outstanding wages
• Notice (worked or paid in lieu, if agreed)
• Superannuation contributions up to the final ordinary time earnings period

Retirement is not redundancy. Therefore, redundancy pay is not applicable unless the role is genuinely made redundant and the termination is employer-initiated.

Step 8 – Dignity and recognition

While not a legal requirement, appropriate recognition supports organisational culture. This may include:

• Formal acknowledgement
• Farewell events
• Recognition of years of service
• Alumni engagement opportunities

Care must be taken not to pressure employees into public events if they prefer a quiet departure.

A practical retirement roadmap for employers

A practical, structured retirement process typically includes the following:

1. Initial discussion and confirmation of intent: Confirm the employee’s retirement intention is voluntary and clarify the proposed final working day. Confirm notice requirements and record the arrangement in writing.

2. Agreement on timeframe: Agree on a practical transition period that balances operational needs and the employee’s plans. Document key dates and any agreed milestones.

3. Review of leave balances: Agree on a practical transition period that balances operational needs and the employee’s plans. Document key dates and any agreed milestones.

4. Consider flexible or reduced hours: Discuss whether a phased reduction in hours would assist transition. Any changes to hours or pay must be mutually agreed and documented.

5. Develop a documented handover plan: Identify critical knowledge, clients and processes. Implement a structured handover, including documentation and mentoring where appropriate.

6. Confirm final pay and entitlements: Calculate and prepare payment of all outstanding wages and accrued entitlements in accordance with legal requirements.

7. Manage departure professionally: Communicate the transition appropriately and recognise the employee’s contribution in a manner consistent with their preferences and organisational culture.

How can Business Chamber Queensland help employers with managing their employees’ retirement

Managing an employee’s road to retirement requires balancing statutory compliance, operational continuity and respectful engagement. When handled strategically, retirement becomes an orderly transition rather than an abrupt loss of capability.

Employers who integrate retirement planning into broader workforce strategy not only reduce legal risk but also strengthen succession planning and organisational resilience.

To help with this process, Business Chamber Queensland have developed the Managing the Road to Retirement Fact Sheet.

The Fact Sheet provides guidance on managing an employee’s transition to retirement, including legal obligations, leave entitlements, flexible working arrangements, phased reductions in hours, knowledge transfer and succession planning. It outlines practical steps employers can take to ensure retirement is handled lawfully, strategically and with minimal disruption to business operations. The Factsheet is accompanied by the relevant checklist, letter templates and a transition plan.

Business Chamber Queensland can play a practical role in supporting businesses during this process. Through workplace relations advisory services, compliance guidance, template documentation and strategic workforce planning support, employers can ensure retirement transitions are managed effectively. Access to expert advice is particularly valuable when navigating long service leave entitlements, flexible work requests, contractual variations, and succession planning in regulated environments.

By combining sound internal planning with specialist external support, employers can approach retirement management with confidence, clarity and reduced risk.