One of the most common questions we receive from employers here at Better HR is: ‘how much redundancy pay do I need to give to my departing employee?‘.
While this might seem like a straightforward question, our response often opens a can of worms.
This is because the calculation of redundancy payments is the final step in the redundancy process.
When we send back our advice, we often make passing mention of the steps which should have been taken leading up to this point. More often than not, the client then gets back in touch for help because they skipped some – and in many cases – all of the steps we’ve mentioned.
This isn’t a trivial matter that we can easily fix because – while our consultants are very good at what they do – they can’t turn back time.
And an employer’s failure to comply with all their obligations can have very serious consequences.
In the worst case scenario, the employee may even become eligible to lodge an unfair dismissal claim on the basis of a ‘non-genuine redundancy’.
So, let’s consider the steps in detail.
Firstly, before an employer even considers making a position redundant, they should ensure they know whether the employee is covered by a Modern Award or an Enterprise Agreement.
If they are, it’s then absolutely critical they fully-comply with the ‘consultation’ related obligations which will be imposed by that Award or Agreement.
Remember: this formal consultation process must take place before a final decision regarding the redundancy is made â€¦ not after!
Next, the employer should make absolutely sure that the work being done by the employee is no longer required to be done on the same basis/in the same way as it is now.
If, for example, a current full-time employee is simply going to be replaced by a new full-time employee once they’re gone, the redundancy won’t be genuine.
In contrast, a downturn in demand which means the current full-time position will be replaced by a part-time position is a classic case of genuine redundancy.
Lastly, the employer must carefully consider whether it’s possible to redeploy the employee somewhere else within the business, or in any other ‘associated entity’. All potential redeployment options should be considered – not just those which offer similar terms and conditions to the employee’s current role.
Only after all of the above steps have been taken – and only after the employee’s submissions have been fully and carefully considered – should a final decision regarding the redundancy be made.
And only then should attention turn to the calculation of the employee’s redundancy payment.