Redundancy is, unfortunately, an increasingly common occurrence in the modern world. As positions are automated and jobs which previously relied on human labour taken over by machines, some positions are simply no longer needed. When this happens, the position can be made redundant, and the corresponding employee or employees may be dismissed.
However, you will have to pay said employees some sort of severance package if you make a position redundant. You should speak with experienced employment lawyers to ensure you’re following the correct procedures, but it’s also useful to have a good understanding of the financial implications of making a position redundant. In the rest of this article, we’ve provided a brief overview of these and more.
What Costs Will I Have to Absorb if I Make a Position Redundant?
If you decide to make a position redundant, you will have to absorb some costs, especially with respect to employee termination payments and entitlement payouts. The financial value of these varies with industry and position, but they include:
- A redundancy payout, which is generally based on the length of time an employee has been working with you.
- Any accrued entitlements, including annual and/or sick leave.
However, it’s also important to realise that redundancy payouts may be reduced under application to the Fair Work Commission if you:
- Can find another job for the employee or employees in question.
- Can’t afford to pay the full amount.
Who Is Entitled to Redundancy Pay?
Now, understand that not everyone is entitled to redundancy pay. There are quite a few conditions to be met. You won’t be eligible for a payout if you:
- Have worked for an employer for less than 12 months.
- Were casually employed.
- Were an apprentice or trainee.
- Had your contract terminated because of serious misconduct or breach of contract.
- Were employed for a fixed amount of time, a particular task or on a seasonal contract.
In reality, only part or full-time employees who have been with a business for over 12 months are usually eligible for a redundancy payout.
Are There Any Cheaper Alternatives to Redundancy?
Since redundancy payouts can be quite high, you may want to explore your other options to decide whether or not it’s the best option. Consider:
- Dismissing casual or temporary employees instead and reassigning those who would be made redundant to these positions.
- Reducing working hours under agreement with the employees. This will, obviously, cut costs and should make it easier for you to retain more employees without making anyone redundant.
- Redeploying people to other departments or locations. If possible, you should always try to redeploy employees to alternative departments or locations before making them redundant. This will eliminate any need for redundancy payouts and reduce the risk of unfair dismissal claims.
Making a position redundant can be expensive, but there are plenty of things that you can do to streamline the process. Follow the tips outlined about, and make sure you speak to a legal professional if you’re not sure about the process or your legal obligations.