Do Small Business Have to Pay Redundancy Pay?
Thinking of letting making an employee's role redundant? Read this article to see if you need to pay redundancy pay as a small business owner.
Small businesses are often subject to slightly different procedures than larger corporations. In particular, this includes termination; redundancy pay isn’t required by some small businesses. To see if your business is in this category, first ensure there is indeed a genuine redundancy.
What is a Small Business?
Businesses should first check if they are classified as a small business. Small business have less 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 being terminated and any other employees getting terminated at the time
- full-time, part-time and only regular and systemic casual employees employed at the time of the redundancy
- employees in associated entities, including overseas ones.
What is Genuine Redundancy?
Employees cannot claim unfair dismissal for termination due to a business downturn, or if their position no longer exists. However, the redundancy must to be a genuine redundancy. This is when operational changes to a company nullifies the need for a job positon, and there is compliance to the correct duties of the relevant industry award or enterprise agreement. Additionally, the employer should exhaust attempts to redeploy the employee elewhere in the business. However, 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.
When Do Small Businesses Have to Pay Redundancy Pay?
The majority of small businesses won’t need to pay their employees redundancy. However, under modern awards in Australia, some industries might have 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. To check if you need to pay redundancy to employees, find your industry on Fair Work Australia’s redundancy pay calculator.
Employers must still 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).
Small business employers will generally not be required to pay redundancy, if the redundancy is in fact genuine. Only employers in certain industries will pay redundancy pay, but all employers need to pay complete final pay entitlements to terminated employees. However, it is always best to check with an employment lawyer to cover all your bases when terminating an employee.
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Jenelle is a legal Intern at Lawpath as part of the Content Team. She is in her third year of a Bachelor of Law and Bachelor of Science (Physics & Astronomy) at Macquarie University.