The term redundancy became popular when the world fell into the great depression of the 1930s and most businesses had to take actions that will help the business not to suffer severe loss or be wiped out. Research on redundancy or better put downsizing suggests that downsizing (that is both voluntary and involuntary redundancy) is being regarded by management as one of the preferred routes to help declining organizations cut unnecessary costs, and improve organizational performance.
In essence, a layoff that is both voluntary and involuntary redundancy occurs as a cost-cutting measure. Please note that a dismissal is not a redundancy and all employees working in Australia and of course under Commonwealth workplace laws are entitled to redundancy payments or severance payments up to a maximum of 16 weeks’ pay under the NES if: They have at least 12 months of continuous service; and they are working for an employer that employs 15 or more employees.
The bottom line here is that irrespective of the type of redundancy, whether voluntary or involuntary, there must be legitimate operational reasons such as if a machine/device is able to do the job; tasks done by an employee are distributed between several other employees; the employer’s business is suffering a downturn, etc. In order to get a proper perspective on the subject matter, we have to define what voluntary and involuntary redundancy is.
Voluntary Redundancy (VR)
Voluntary redundancy occurs when the owner of a business or a corporate organization asks some of their employees to sign an agreement that will terminate their employment contract with the company in exchange for financial compensation.
In essence, voluntary redundancy (VR) is a financial incentive offered by an organization to encourage employees to voluntarily resign, typically in downsizing or restructuring situations. The purpose of voluntary redundancy (VR) is to avoid compulsory redundancies or layoffs.
Please note that a voluntary redundancy program is not always driven by short term revenue goals. It can also be motivated by the strategic choice to change the age structure within the company. Recent research conducted shows that people who accept voluntary redundancy may at times return to the company after changes in the company’s prospects, strategic vision, or economic climate and, in doing so, may bring new ideas.
Involuntary redundancy is the temporary suspension or permanent termination of the employment of an employee or, more commonly, a group of employees (collective involuntary redundancy) for business reasons, such as personnel management or downsizing (reducing the size of) an organization.
Involuntary redundancy has remained the most efficient means for a company to cut costs. Although from the employer’s perspective a voluntary redundancy is beneficial for the business, involuntary redundancy creates an uncertainty in the workplace environment and lowers other employees’ job security as well as creates an apprehension and fear of termination for the remaining employees, and subsequently lowers overall motivation in the workplace environment.
What is the Difference Between Voluntary Redundancy and Forced Redundancy in Australia?
- The difference between voluntary and involuntary redundancy is that voluntary redundancy VR is typically offered to a specific age group and experience level, for example, employees that are between 40 to 50 years who have been with the company for at least 10 years. With this approach, younger workers can get a chance to work because the older people have retired early.
Whereas involuntary redundancy is not age specific and can affect any employee irrespective of their age and the number of years they have spent in the organization.
- Involuntary redundancy programs target employees for job loss despite their own wishes. Whereas voluntary redundancy program allows eligible employees to choose whether or not to participate’ in the redundancy campaign.
- In most cases in Australia, with involuntary redundancy, the job no longer exists, whereas a voluntary redundancy is where your job still exists but one of the other conditions may apply.
- In Australia, voluntary redundancy packages offer more in terms of financial compensation than compulsory redundancy. A voluntary redundancy package will typically go over and above these limits to incentivize staff and increase interest in your offer.
Whereas it is not so with involuntary redundancy because sometimes what leads to the redundancy is beyond the control of the employer.
- In Australia, when it comes to involuntary redundancy, the employee doesn’t have a choice as regards accepting the redundancy or declining. But with voluntary redundancy, when an employer invites employees to put themselves forward for voluntary redundancy, the employee reserves the right to refuse applications.
- In Australia, voluntary redundancy and early retirement scheme payments are tax free up to a limit based on the employee’s years of service. The tax-free amount is not part of the employee’s ETP. It is reported as a lump sum in the employee’s income statement or PAYG payment summary – individual non-business.
- In Australia, with voluntary redundancy, you can negotiate with your employer to decide on a redundancy payment that’s fair and gives you the foundation to find a new role. With involuntary redundancy, you don’t have this option.
- In Australia, with voluntary redundancy, the employee will be given time (notice) to make the decision. One week’s notice (for those employed between one month and two years) One week’s notice for each year (for those employed between two years and 12 years) 12 weeks’ notice (for those employed for a period of more than 12 years).
Whereas with involuntary redundancy it can be sudden, and all depends on what is leading to the redundancy program.
Whether it is voluntary redundancy or involuntary redundancy, it usually directly affects the employee. However, the employee who is made redundant is not alone in this. Voluntary redundancy or involuntary redundancy affects the workplace environment and the economy as well as the employee. Redundancy has a widespread effect and the three main components of layoff effects are in the workplace, to the employee, and the economy.