Part of owning a business is the responsibility of making the tough calls to minimise business risks, and for most business owners, employee retrenchment is arguably one of the hardest decisions to make.
As a business owner or manager, there might come a time when you need to consider making an employee or group of employees redundant. As if running the business isn’t enough of a challenge in itself, the decision to make an employee redundant is often difficult to make.
But if your business risks or already faces being insolvent or bankrupt, among other difficulties, you have to make the tough calls and do what needs to be done.
Redundancy becomes necessary when your business doesn’t need an employee’s services anymore or when your company faces imminent collapse. Lower sales or production, interstate or overseas relocation, restructuring and reorganisation, and/or a complete business shutdown are some of the other reasons forcing redundancy.
What is genuine redundancy?
Before deciding to finally retrench your employees and proceed with making one or some of them redundant, you need to make sure it is a necessary process, a genuine redundancy.
Make sure that the termination is both fair and lawful, and that it is absolutely necessary. As a small business owner or manager, you will also need to see to it that you comply with all relevant awards, enterprise agreements, and/or registered agreements in play.
Simply, exhaust all other options before finally deciding on redundancy.
Upon establishing that redundancy is still the best way to go, proceed by:
- Confirming it is a genuine redundancy
- Seeking legal advice, if uncertain
- Confirming the notice period you are required to give before making a position redundant
- Preparing letters for retrenched employee(s)
- Reviewing the employee’s entitlements, including final pay
- Taking into consideration that you may be required to contact Centrelink, of the Australian Government Department of Human Services, to let them know about the redundancy
- Discussing the redundancy with the employee and giving them the opportunity to respond
- Holding a meeting with other employees to explain reason(s) for the decision
- Providing employee with letter of termination
Make sure you thoroughly prepare the letter of termination due to redundancy. See to it that it includes:
- Valid reason(s) for the redundancy. For example, it could specify a valid reason as changes to business structure, areas of work, or employee’s role or expertise no longer needed by the company, etc.
- Explanation to the employee that you have exhausted all other options before arriving at the decision to proceed with the redundancy, including trying to find them a new role within the company and that there is no role available that your business requires/needs, so the continuation of their employment is not possible
- The notice you will be providing to the employee including details of the payments the employee will be receiving up to their termination
- Information on any other entitlements that may apply, such as superannuation, sick pay, etc.
Proceed by determining the appropriate redundancy payments:
- Less than one year’s continuous service: none/nil
- At least one year but less than 2 years continuous service: 4 weeks’ pay
- At least 2 years but less than 3 years continuous service: 6 weeks’ pay
- At least 3 years but less than 4 years continuous service: 7 weeks’ pay
- At least 4 years but less than 5 years continuous service: 8 weeks’ pay
- At least 5 years but less than 6 years continuous service: 10 weeks’ pay
- At least 6 years but less than 7 years continuous service: 11 weeks’ pay
- At least 7 years but less than 8 years continuous service: 13 weeks’ pay
- At least 8 years but less than 9 years continuous service: 14 weeks’ pay
- At least 9 years but less than 10 years continuous service: 16 weeks’ pay
- At least 10 years continuous service: 12 weeks’ pay
Take note that there are employees exempt from redundancy pay:
- Employees who’ve worked for a small business with fewer than 15 employees
- Employee has rendered less than 12 months’ continuous service
- A casual employee, or employees who are not part of the permanent workforce and therefore do not observe a regular or systematic work schedule, or do not have expectation of continuing work
- Employee that has been terminated because of serious misconduct
- Employee that is employed for a specified task, for a specified period of time, and/or a specified season and is terminated at the completion of said task, time, and/or season
- A training arrangement that applies to the employee and his/her employment is for a specified period of time, or, is, for any reason, limited to the duration of the training arrangement
- Employee is an apprentice, or someone who is aged 16 years or over who combines working for your company and studying to gain skills and knowledge in preparation for a specific job
- Industry-specific redundancy scheme in a modern award applies to the employee, or the redundancy scheme is incorporated into an enterprise agreement which applies to the employee
Once you are aware of all your responsibilities and above considerations, you will then need to focus on timing in effecting the redundancy.
Of course, the best way to inform your employee(s) is still by meeting them face-to-face. Bear in mind, too, that timing is also influenced by the minimum notice period required (providing pay in lieu of notice). Still, meeting your employee(s) personally is the best way to proceed. If your employee is away, duly wait for them to return. If they are on leave, wait for them to return to the office or make arrangements for a meeting.
Redundancy can sometimes be an unpleasant process. That is why thoroughly understanding the considerations and requirements it entails will help you ease the process even only a little bit. This is not only for yourself as business owner or manager, but more importantly, for your employee(s).