What is Voluntary Redundancy?
Voluntary redundancy occurs when an employee volunteers or agrees to be made redundant.
In most cases of voluntary redundancy, the employer offers a financial incentive to an employee to voluntarily resign, ideally subject to a formal Deed of Release which ends the employment relationship and generally prevents the employee from bringing a successful claim against the employer.
In effect, the business benefits as they do not have to undergo the trauma and turmoil associated with downsizing, including reputational risks which arise from such discussions. The business may be able to forego the protracted consultation processes that are required to effect a genuine redundancy.
A genuine redundancy occurs when a business no longer requires anyone to do the employee’s job. Employers should follow a fair procedure for redundancy, including consultation (where required) with the relevant employee as to why the role is being made redundant and explore options to keep the employee in the business.
BrightHR has a Redundancy Tool to help you navigate this process. This tool helps you formulate a plan and ensures you take all necessary steps. It provides resources and template documents, and has a handy glossary to clarify relevant terminology.
Reasons for Voluntary Redundancy
Each company has their reasons for wanting to offer voluntary redundancy.
From an employer’s perspective, offering voluntary redundancy may save them the hassle of making the difficult decision of deciding which roles and team members to make redundant if the circumstances of the business are such that the role is no longer needed. It will also minimise the impact on morale and productivity and may prevent any lingering bad blood between the organisation and employee, both of which could have a negative influence on client and staff relationships.
However, it is important to note that voluntary redundancy is not a way to avoid paying for redundancy payments, if applicable, and other entitlements owed to the affected employee. Payment of entitlements is still required.
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Voluntary Redundancy Payment
The National Employment Standards (NES) usually set out a minimum redundancy or severance payment for permanent employees based on their length of service, though some awards or registered agreements may have Industry Specific Redundancy Schemes that set out different entitlements. Although not all employees are entitled to redundancy pay, if they are, it usually depends on how long the employee has been employed with the business, even though it may have changed hands during their employment. Unauthorised unpaid leave generally won’t count when determining the length of service, so use BrightHR and Blip to record employee absences.
Generally, for an employee to be eligible for redundancy payment, they must have been working with the business for at least one year and the business needs to have fifteen or more employees at the time, including the employees whose roles are being made redundant. However, it is important that you check for any exceptions in the applicable Award or registered agreement as sometimes the employee will get redundancy pay irrespective of their length of service and regardless of the size of the business.
You can manage and keep track of employee rosters, timesheets, leave and absenteeism to enable you to pay the employee their final pay with BrightHR. You can generate and print reports, and then store wage and time records and related documents securely in the cloud to comply with your record-keeping requirements.
Risks associated with Voluntary Redundancy
If the process is not properly considered or planned, the business risks losing its best and brightest, who may opt to depart in order to cash in on the entitlements and incentives offered. This talent drain occurs because the best and most experienced employees are precisely those who are most likely to obtain jobs in the open market.
To avoid this problem, businesses may endeavour to ensure that the voluntary redundancy is targeted at specific classes of employees. However, this may also incur problems as targeting may be considered discriminatory – particularly if the decision is based either directly or indirectly on age or gender.
Voluntary redundancy can be incorporated into a traditional redundancy approach. Whilst this may offset some of the benefits, it also mitigates many of the risks associated with targeting. If you would like to engage with this approach you should speak to an appropriately qualified professional.
Employee Request for Voluntary Redundancy
Should a business wish to consider approaches made by an employee for voluntary redundancy, it is recommended that a formal policy is implemented to ensure consistency and fairness in dealing with each request.
While employers are not required to approve each offering for voluntary redundancy – they must be careful about who they approve and how they approve it or else they might be at risk of a claim being lodged against the business.
Employsure can help you better understand the voluntary redundancy process. Call us for free initial advice on 1300 651 415.
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Frequently Asked Questions
How Is Voluntary Redundancy Pay Calculated In Australia?
Voluntary Redundancy pay is an agreed sum. However, it is usually calculated in accordance with the relevant terms of the National Employment Standards contained within the Fair Work Act or applicable Modern Award or Enterprise Agreement.
Why Would A Company Offer Voluntary Redundancy?
A Company may offer a voluntary redundancy package to expedite the redundancy process and avoid having to select a particular role and employee to be made redundant.
Is Voluntary Redundancy A Genuine Redundancy?
It is recommended that a voluntary redundancy is a genuine redundancy, in order to minimise any risks to the business. This means that the business no longer requires anyone to do the role, has followed any consultation requirements, and has explored other employment options within the business before terminating the employee.
What Are The Pros And Cons Of Employees Taking Voluntary Redundancy?
The voluntary redundancy process can be quicker and less disruptive, and the company avoids having to select a specific role or employee for redundancy. It may also be an opportunity for less committed workers to leave. On the other hand, good workers may also choose to take the financial incentive as they know they will easily gain employment elsewhere.
What’s The Difference Between Voluntary Redundancy Or Compulsory Redundancy?
Voluntary redundancy is when you allow employees to choose to resign, generally in return for a financial incentive. Compulsory or genuine redundancy is when the business no longer needs anyone to do a particular job for operational reasons or the business is insolvent or bankrupt. The employer should meet any consultation requirements and explore other employment options in the business or an associated business before ending the employment relationship.
Can I Refuse Voluntary Redundancy?
Yes. The business offers a financial incentive to resign to a group of employees who can choose whether or not to take the opportunity.
What Is The Notice Period For Voluntary Redundancy?
An employer must provide an employee with written notice of the day their employment ends. How much notice the employer should give the employee depends on the nature of the employee’s employment, and how long they have been employed in the business and the terms contained within the Fair Work Act, or applicable Modern Award or Enterprise Agreement. The employee can either work the notice, or the employer must pay the employee the notice period in lieu.
What Benefits Can My Employee Claim If They Take Voluntary Redundancy?
The employee choosing to be made redundant has the same entitlements as if the redundancy wasn’t voluntary, including notice, payment of any unused leave, and redundancy pay or long service leave where applicable. The employee may also receive extra benefits as part of their severance package, usually in the form of a financial incentive, for choosing to be made redundant.