When Is Redundancy the Best Option?

While Australia fights its way back to black, the long and bumpy road out of recession and into the most basic of economic stability is even more challenging for small businesses.

Some of the most difficult decisions being made by small business owners are those of their staff and pay. While redundancy may seem like the simplest option as an owner, it can often be one of the most financially and emotionally draining.

It’s important to plan ahead for these situations, but not rush into taking action.  There are a few things you can do first, before making redundancy decisions.

Redeploy Your Staff

If you are considering making a position redundant, it must be a genuine redundancy, or the employee who has been made redundant may have grounds for a claim of unfair dismissal. A redundancy is genuine if you, as the employer, no longer require anyone to do the role because of the operational requirements of the business, and you must also explore alternatives to redundancy.  

So one of the first things you should consider is whether you can redeploy any workers to another role within the business or an associated business. Awards and registered agreements may have specific redundancy provisions, and they generally require employers to consult with their employees, and explore any reasonably possible redeployment options given the circumstances within the business or an associated business entity.

This can mean moving a staff member to another workplace or moving an employee from one role to another. Doing so means the employee may be able to fulfil a needed role elsewhere and retain their employment. The employer may need to provide evidence of the steps they have taken to identify other positions that the employee could reasonably do if there is doubt the redundancy is genuine.

When considering redeployment, the job must be suitable, in the sense that the employee should have the skills and competence required to perform it to the required standard in order to hit the ground running, or else with reasonable retraining. the location and the level of remuneration of the alternative position also need to be reasonable, but the employer should still offer any lower-paid roles with less responsibility or positions located elsewhere to the employee for their consideration.

So instead of going through with a redundancy there may be an opportunity to shuffle staff around.  

Negotiate With Employees To Reduce Pay Or Hours

Reducing employee’s pay is an option that may be available to you in limited circumstances. Reducing an employee’s pay may not only save you the cost of a redundancy, but it may also be a simpler way to reduce your wage bill and improve your business’ financial health.

There are two fundamental workplace relations requirements to be aware of ie. You generally require the employee’s agreement to change your employee’s contractual terms and conditions; and you can’t pay under the applicable minimum rate of pay for the job that the employee performs.

Generally, employers cannot unilaterally reduce an employee’s pay. If you reduce an employee’s pay without their agreement, then you may be breaching the contract of employment as well as an applicable award or registered agreement.

Further, if you do proceed with negotiating with an employee regarding their pay – even if there is mutual agreement – you must ensure you do not pay below the national minimum wage for employees covered by the national workplace relations system, or applicable minimum pay and conditions as provided by the applicable industrial instrument, for example an award or registered agreement.

It is quite difficult to compliantly reduce an employee’s wages or salary. However, there is another, arguably simpler, method to help save wage costs – negotiating reduced hours.

As with reducing pay, employers should check the applicable award or registered agreement before considering reducing an employee’s hours as there may be specific provisions regarding minimum engagement periods. In most cases, reducing hours requires formal consultation. Consultation requirements might also extend to casual employees.

We can help you better understand redundancy and any alternatives to redundancy, and can help you keep track of employee entitlements with our BrightHR software. Call us for free initial advice on 1300 207 182.