Understanding redundancy in small businesses
What is redundancy?
Redundancy occurs when an employee's job is no longer needed, and the employer decides that the job should not be performed by anyone. This situation can arise for various reasons, such as business downturns, technological changes, or restructuring for efficiency.
Under Australian law, specifically the Fair Work Act 2009 (Cth), employees in businesses with 15 or more employees are generally entitled to redundancy pay, as outlined in the National Employment Standards (NES) [sections 119 to 122].
The amount of redundancy pay depends on the employee's period of continuous service and the award or enterprise agreement that applies.
A redundancy must be genuine, which means the employer no longer requires the job to be done by anyone, has met any consultation requirements in the award or enterprise agreement, and it is not reasonable for the employee to be redeployed within the employer's enterprise.
If a redundancy is not genuine, it may be considered unfair dismissal. Small businesses with fewer than 15 employees are not usually required to pay redundancy unless it is provided for in an award, contract, or agreement.
So, what is redundancy in a small business?
In a small business in Australia, defined as one with 14 or fewer employees, redundancy is handled differently than in larger businesses.
Small business employers are not required to provide redundancy pay under the National Employment Standards (NES) as per section 23 of the Fair Work Act 2009 (Cth).
However, there are exceptions, such as if redundancy pay is specified in an employee's award, contract, or agreement.
A redundancy is considered genuine if the employer no longer requires the job to be done by anyone, has complied with consultation requirements in the award or enterprise agreement, and it would be unreasonable to redeploy the employee within the employer's enterprise.
The Fair Work Commission has the authority to reduce an employer's redundancy pay obligations if they have found suitable alternative employment for their employees or if they are unable to afford the payments. Additionally, enterprise agreements may offer more generous redundancy benefits than the NES.
Employees can make claims for unfair dismissal within 21 days of being made redundant.
If you and the employee are in agreement about the redundancy, you might consider signing a Deed of Release, in which the employee agrees to not making an unfair dismissal claim against you, so that you don’t have this to worry about.
Reach out to Law Team today to find out more, and to make sure if you do need to make an employee redundant, you do it the right way.