Most small or medium businesses are hyper sensitive to the swings of the economy. When the revenue line falls, most businesses naturally turn to the cost line. But in most small or medium businesses the biggest cost is staff; and as an owner operator you have spent long periods building up the skills and rapport with staff who know your business. If you let them go, it will be hard to get them back when growth returns.
Before considering the classic trade-off, take a holistic look at ways to increase business efficiency in tougher times, while considering alternatives arrangements with staff before defaulting to staff cuts.
If labour costs need to come down, there are other options to investigate prior to redundancies. Ultimately, the combination of options that are right will depend on your individual business.
Taking of leave
For a defined period, ask employees to consider taking their paid leave, or unpaid leave, possibly in conjunction with a business shutdown over the same defined period.
Reducing in hours or pay
Any reduction must still meet or exceed the minimum rates set by the Award applicable to your business.
Job share or part-time work
Ask staff if they would consider job sharing or working part-time for a period of time.
Fluctuating work hours
Utilise casual employees. Even though they are entitled to casual loading on their hourly rate, they are likely to be more cost effective if your needs often fluctuate and you cannot guarantee minimum hours. You only have to engage them when you need them
Are there any monetary or cost benefits you are currently providing to staff that could stop for a set period while the business tightens its belt?
You as the business owner will be best placed to know whether your employees would be willing to take such steps to avoid redundancies.
Please note, these options need to be agreed with your employees and you cannot change employee’s terms and conditions of employment or apply any duress or undue influence to make them do so. Seek advice before you take any action to avoid potential claims.
A redundancy occurs when an employee’s job is no longer required for the business. There are many reasons why a redundancy may occur. Some examples include: new technology fulfilling the job obligations or the business relocating or closing down. The result from any of these scenarios is that the employee, who no longer has any work to do, may have their employment terminated.
A redundancy is not considered genuine if it occurs because of an employee’s performance or conduct. It is important that no matter the scenario for a redundancy coming about, employers need to follow a fair procedure, including plenty of consultation and communication with the relevant employee. Failing to comply with these requirements makes it difficult to defend an unfair dismissal claim.
Generally, even employees with only one year of service are entitled to four weeks redundancy pay, increasing up to 16 weeks for employees with 9 years of service. Luckily, small business employers may be excluded from the obligation to pay redundancies.
Click to calculate redundancy payouts.
The full cost of a redundancy is the immediate financial pay-out and the loss of the employee’s skills and the future positive effect on the business. Judgement here is critical. If you judge a short-lived slowdown, weigh up the full cost of redundancies verses other options to allow you to retain your employees. If you judge the slowdown will be more protracted and redundancy is inevitable, it may be better to reduce headcount sooner rather than later. Ongoing cost cutting and the uncertainty surrounding job security is likely to have a significant negative effect on morale and productivity. Making hard decisions upfront will allow you and the rest of your employees to get on with the business.
Here are some tips to ensure it is reasonable to make a role redundant:
A) When an employer does not require an employee’s job to be done by anyone, or if the company becomes insolvent or bankrupt
B) When the employer followed any consultation requirements in the Award, Enterprise Agreement or other registered agreement
C) When a company introduces a new technology, slows down due to lower sales of production, relocates interstate or overseas, restructures or reorganises due to a merger/takeover
Restructures and redundancies are complex, high risk and sensitive matters. Not only is consultation is a legal requirement in relation to redundancies and major workplace changes, including alterations to hours and restructuring of roles, but is also crucial to obtaining employee buy-in to the changes.
Employsure can support employers through the redundancy process to ensure that you are meeting your employment obligations under the Fair Work Act. If you have any questions about redundancy, call Employsure today on 1300 651 415 or visit employsure.com.au