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 three things you can do first, before making redundancy decisions.

Redeploy Your Staff

If you’re considering making a redundancy, one of the first things you should consider is whether you can redeploy any workers to another role in the business.

Many Awards require employers to explore possible redeployment during formal consultation.

This means 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 and retain their employment.

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 either immediately or within a reasonable period of retraining.

Instead of going through with a redundancy in one for one of the positions and hiring for a different position, there may be an opportunity to shuffle staff around instead.

Use JobKeeper Enabling Stand Down Directions

JobKeeper Enabling Directions can potentially be used to help avoid a redundancy until things pick up again. In particular, if you comply with all of the conditions regarding JobKeeper Enabling Stand Down Directions, you can reduce an employee’s hours, (including to nil for employers who qualify for JobKeeper or for legacy employers (for employers who previously qualified for JobKeeper and hold a 10% decline in turnover certificate) up to 60% of the employee’s ordinary hours that they worked at a particular date).

The period of stand down under a JobKeeper Enabling Stand Down Directions can give employers more leeway to reduce their employees’ hours.

However, the period that an employee is stood down during this Enabling Direction is counted towards their length of service. This can mean delaying a redundancy through a JobKeeper Enabling Stand Down may result in higher costs if you do decide to proceed with a redundancy in the future.

For more information on JobKeeper Enabling Stand Down Directions and how they can be used to potentially avoid redundancies, read this blog or download our free guide on JobKeeper Enabling Directions.

Negotiate With Staff To Reduce Pay

Reducing employee’s pay is an option that may be available to you. 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 basics of workplace relations legislation to be aware of; mutual agreement to change your employee’s terms and conditions; and you can’t pay under the applicable minimum pay.

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

Further, if you do proceed with negotiating with an employee’s pay – even if there is mutual agreement – you must ensure you do not pay below the applicable minimum pay and conditions.

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 their obligations before reducing hours. In some cases, reducing hours may require formal consultation. You might also want to check your award to ensure reduction is not prevented by way of award provisions such as minimum engagement periods. Consultation requirements might also extend to casual employees.