Most small businesses in Australia won’t need to pay their employees redundancy. However, under modern awards in Australia, some industries are expected to pay redundancy to employees. These industries include those covered by the Textile, Clothing, Footwear and Associated Industries Award 2010 and the Manufacturing and Associated Industries and Occupations Award 2010.

In Australia, employers are still expected to pay a redundant employee their final pay entitlements, even if not required to pay redundancy under a modern award. This includes unpaid or owed wages, accumulated annual leave, and accrued long service leave (where applicable). A small business under Australian employment law is regarded as a business having fewer than 15 employees.

The number of employees is counted when the employee is told their employment will be terminated, or a notice of termination is given (whichever occurs first). When calculating the number of employees, take into account: The employee you are terminating, Any other employees you plan to Terminate, Full-time or part-time, and only regular and systemic casual employees employed at the time of the redundancy, and maybe Employees in associated entities, including overseas ones.

Redundancy tends to happen where your business no longer needs a certain job to be done. This can occur for many reasons, including if your business is in financial trouble or you are outsourcing the job. Note that only full-time and part-time employees can receive redundancy pay, and only if they have been employed at the business for more than 12 months. In order for a redundancy to not constitute an unfair dismissal, it needs to be genuine.

Have it in mind that employees cannot claim unfair dismissal for termination due to a business downturn, or if their position no longer exists because these redundancies are genuine. This is when operational changes to a company nullifies the need for a job position, and there is compliance with the duties of the relevant industry award or enterprise agreement.

In addition, the employer should exhaust attempts to redeploy the employee elsewhere in the business. Nonetheless, filling the former employee’s position with a new employee is not a genuine redundancy. The Small Business Fair Dismissal Code provides a checklist that assists with determining whether there is a genuine redundancy. The main themes of the checklist are to:

  • Warn the employee (verbally or in writing) of the possibility of dismissal if they don’t improve their performance
  • Give the employee the time to show improvement in performance or conduct
  • Provide additional training to the employee
  • Termination of an employee without warning or notice is fair in cases of serious misconduct. Serious misconduct is theft, fraud, violence, and serious breaches of occupational health and safety operations

Additionally, so many small businesses hire employees on a casual basis. Due to the nature of casual employment, casual employees are not entitled to redundancy pay. However, if a casual employee has been working at your business for more than 12 months, they may be able to claim leave entitlements or long service leave if they have been employed for 10 years or more.

Tips for Preparing a Redundancy Selection Criteria Matrix

An employer that has identified a pool of employees at risk of redundancy is expected to follow a fair procedure when deciding who to select from that pool. A redundancy selection criteria matrix can help employers reach that decision. Listed below are few tips to ensure the process is transparent and acceptable:

  1. Use a Redundancy Selection Criteria Matrix for Transparent Decision Making

A redundancy selection criteria matrix spells out the necessary criteria that will be applied in making the selection decision. Common criteria selected by employers include skills, performance, and disciplinary records. Each employee in the redundancy pool is scored against each of the criteria and the employees with the lowest scores are selected for redundancy.

The advantage of doing this is that it is absolutely clear what’s being taken into account and how the decision has been made. If any employees challenge the decision, it is going to be much easier to defend.

  1. Take Disciplinary Records into Account Only if Rules Have Been Applied Consistently

Disciplinary records are more or less included in the redundancy selection criteria matrix. Employers should ensure that they act fairly if employees are marked down for having a disciplinary record. It is also necessary that disciplinary rules have been applied consistently and employers should be cautious about taking expired disciplinary warnings into account.

  1. Consult Employee Representatives on the Redundancy Selection Criteria Matrix

Right before you conclude the matrix, employers are advised to consult with employee representatives about the criteria on which the selection decisions will be based. If the matrix is approved by the union or other representatives, the employer will be in a stronger position to defend its decisions if challenged by individual employees. It is indeed possible to give different weightings to different criteria, so not everything is judged to be as important, and that could be something to negotiate with employee representatives.

  1. Choose Objective Redundancy Selection Criteria

Employers have discretion over which criteria to choose, with the aim of retaining staff members that are most valuable to the organization. You have to be able to assess everybody against the criteria in an objective way. So you need to choose criteria that are measurable and not just based on opinion.

  1. Be careful when employees have been absent from work on maternity leave or for a disability-related reason

Note that absence on maternity leave, pregnancy-related absence, and disability-related absence should all be discounted if the absence is included as a criterion for selection.

Employers are expected to think carefully about how to score employees on other criteria, such as performance if they have been absent during the period being assessed. The employer is also required to balance the need not to discriminate against an employee on maternity leave or disability-related absence with the need not to disadvantage other employees.

  1. Consider the weighting given to long-term and short-term absences

Have it in mind that attendance records can be included in the selection criteria matrix (discounting pregnancy-related or disability-related absence), but employers should consider how to score employees fairly. One good option is to give multiple short-term absences less weight than single periods of longer-term absence. This would reduce the disadvantage to, for example, an employee who has been absent recovering from surgery.

  1. If scoring employees on their performance, measure this objectively

Marks from performance reviews or appraisals can be leveraged in the selection process if these have been carried out consistently across all employees in the redundancy pool and assessment is based on objective measures. However, it is imperative to come up with a fair time frame over which performance will be assessed: a longer time frame is likely to give a more accurate picture.

Conclusion

In Australia, small business employers will more or less not be required to pay redundancy, if it is genuine. Only employers in certain industries will pay redundancy pay, but all employers need to pay complete final pay entitlements to terminated employees. Despite this, it is always advisable to check with an employment lawyer to cover all your bases when terminating an employee.

Ajaero Tony Martins