Managing people

How to make an employee redundant

Choosing which employees need to be made redundant can be a difficult decision for employers, and the consequences of not following an appropriate process can be both costly and time consuming.

Begin with a consultation

Modern awards contain a ‘standard’ provision that places an obligation on an employer to consult with employees regarding major workplace change. The award requires an employer to notify affected employees when a definite decision has been made to introduce major changes that are likely to have significant effects on employees. 

‘Significant effects’ include terminating employment, so making a position redundant by restructuring must be something the staff are aware of as a possibility. 

The obligation of an employer to consult with employees would arise in most redundancy situations. Failure to do so may result in a claim of unfair dismissal because, for example, the selection criteria used to identify which employee was to be made redundant was subjective and discriminatory.

Create selection criteria

Selecting which employees are to be made redundant can give rise to disputes. Employee dismissal may be influenced by a number of factors, including union pressure, award obligations, or anti-discrimination legislation.

Even in the case of genuine redundancy, the termination of employment may be harsh, unjust or unreasonable.

The factors determining which positions are to be redundant should be based on objective criteria and should be known by employees in advance, such as through company policy. The employer should select who is to be made redundant, referring to the skills, experience, training and performance of individuals compared to the current and future needs of the organisation.

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SUPPORT DIRECTLY IMPACTED EMPLOYEES

For loyal employees, a redundancy conjures feelings of separation, similar to a relationship breakdown – or loss, such as a death. It’s important to show your appreciation of the contribution made to the organisation. 

Reassure the impacted employees it’s a business decision and nothing personal. At all times treat employees with dignity and respect – this will ensure they do the right thing until they finish up. The last thing you want is a disgruntled employee sabotaging your operations. 

In the remaining time with the organisation, it's best practice to provide any support needed – whether it’s a mental health and wellbeing day off or time during work hours to go for job interviews.

Where possible, provide a corporate outplacement program as part of the redundancy package. This will give your outgoing staff the tools to transition to job searching. They will benefit by attending workshops and have access to resources and a mentor. Programs also include how to create a resume, learn to write powerful cover letters and tips for mastering interviews. 

Consider the rest of your organisation

It’s important to consider how the redundancies will impact the rest of the organisation – the survivors.  There is often a mixed sentiment. Some will feel guilty, others experience a sense of relief while others may be thinking their job may be next on the chopping block.

Redundancies can demotivate employees. Emotions are high, morale can be  low and staff tend to disengage which leads to a decline in productivity. You may need to consider new approaches to re-engage employees. Actions speak loudly, so apply strategies to demonstrate the importance of workplace culture across the organisation. 

REDUNDANCY PAYMENTS

The National Employment Standards (NES) prescribes a scale of redundancy payments based on an eligible employee's years of continuous service with the employer. Each redundancy payout is based on the following scale:

  • less than one year's continuous service — Nil

  • at least one year but less than two years continuous service — four weeks' pay

  • at least two years but less than three years continuous service — six weeks' pay

  • at least three years but less than four years continuous service — seven weeks' pay

  • at least four years but less than five years continuous service — eight weeks' pay

  • At least five years but less than six years continuous service — 10 weeks' pay

  • At least six years but less than seven years continuous service — 11 weeks' pay

  • At least seven years but less than eight years continuous service — 13 weeks' pay

  • At least eight years but less than nine years continuous service — 14 weeks' pay

  • At least nine years but less than ten years continuous service —16 weeks' pay
  • At least ten years continuous service — 12 weeks' pay.

 

Employees exempt from redundancy pay

Under ss121 and 123 of the Fair Work Act, the redundancy pay scale in the NES does not apply to an employee's termination of employment if, immediately before the time of the termination due to redundancy, or at the time when the person was given notice of termination:

  • the employer is a small business employer (employs fewer than 15 employees)

  • an employee has less than 12 months' continuous service with the employer

  • the person is a casual employee

  • the employee is terminated because of serious misconduct

  • the employee is employed for a specified task, or a specified period of time, or a specified season and is terminated at the completion of the specified task, time or season

  • a training arrangement applies to the employee, and their employment is for a specified period of time, or is, for any reason, limited to the duration of the training arrangement

  • the employee is an apprentice

  • an industry-specific redundancy scheme in a modern award applies to the employee or is incorporated into an enterprise agreement which applies to the employee.

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