While the decision to reduce staff hours is a difficult one, it may be unavoidable for your business in some situations.

Before you take any action, it is important to consult your staff. These kinds of decisions are never easy to make, and it is crucial to preserve the morale of the employees who remain with your business. It’s also worthwhile to maintain a healthy relationship with any staff in case you are able to re-adjust their hours in the future.

As hard as this situation is for the employees being affected, being fair and sensitive throughout the process can make a big difference. 

Things To Consider Before Reducing Staff Hours

Before you reduce your staff hours, there are many considerations you should take into account regarding their employment status, Modern Awards and leave entitlements. 

Employees vs Contractors 

Firstly, it is important to know whether your staff are employees or contractors. We’ve written about the distinction between employees and contractors here, but let’s quickly run through it. 

The following factors are relevant to whether someone is a contractor or an employee: 

  • Control: Whether they have autonomy with their work and can control how the work is carried out, provided they complete it
  • Invoicing: Whether they are engaged for a particular job or task and invoice you for it under their own ABN
  • Tools and equipment: Whether they supply their own tools and equipment, and aren’t required to wear a uniform
  • Insurance: Whether they have their own insurance policy.

There are a variety of factors that Fair Work considers when distinguishing between a contractor and an employee (you can read their full factsheet here). 

It is wise to get advice on this if you are unsure because, if your staff member turns out to be an employee, they could make an unfair dismissal claim or a claim to recover any employment entitlements you have denied them. 

On the other hand, independent contractors aren’t eligible to claim employment entitlements or unfair dismissals. 

Categories Of Employees 

So, if they’re not contractors, it is important to know what type of employees you currently employ. Let’s go through them. 

Permanent Employees 

A permanent full-time employee is someone who usually works, on average, 38 hours a week, while a permanent part-time employee works less than 38 hours. 

Permanent employees generally work regular hours each week and are entitled to sick leave and paid annual leave. 

If you terminate a permanent employment, then you are obliged to: 

  1. Give the employee the required notice 
  2. Pay out leave and any other entitlements they are owed

Casual Employees 

On the other hand, casual employees work irregular hours and generally do not have a firm commitment in advance from their employer regarding how long they will be employed for — all of which will be reflected in their employment agreements. 

Often, casual employees are not told the days or hours they will work, and do not get paid sick or annual leave. 

As they are not afforded sick or annual leave, they are accordingly paid a higher rate called a casual loading. 

There is also the concept of employees becoming long term casuals after 12 months of being engaged regularly by an employer. While these long term casuals still do not get paid leave, they may be eligible to take parental leave and request flexible working arrangements. 

Regardless of whether a casual is a long term casual or not, in the case of termination, they are generally not entitled to receive notice or payouts of leave. 

When Does a Casual Employee Become Permanent? 

The true nature of casual employment is one that is intermittent and ad-hoc. 

However, if your casual employees are receiving ‘regular’ and ‘systematic’ hours and work, then they may be able to access certain entitlements. 

If your employee’s work is weekly, starts at similar times and involves much of the same type of work, then they may be entitled to paid annual leave (and other permanent employee entitlements). 

A real life example: WorkPac.  

You may have heard of a case involving WorkPac, which is a labour hire business. 

WorkPac employed a truck driver on a casual basis and this driver worked on a rotating roster that was set 12 months in advance. 

When the truck driver’s employment was terminated, he claimed that he was a permanent employee and, as a result, was entitled to a payment for accrued but untaken annual leave. 

In deciding this case, the Full Federal Court considered the irregular and uncertain nature of casual employment, and confirmed that the employee in question would be considered a permanent one and was therefore entitled to the accrued leave payout. 

So, the moral of the story here is to make sure you’re aware of what type of employees you currently employ to understand what you owe them, particularly if you’re considering letting them go. 

Leave Entitlements 

We’ve written about the legals you need to know regarding leave entitlements, and other things you should be considering when reducing staff hours.

Modern Awards And Enterprise Agreements 

If a Modern Award applies to your employee, then you are bound by the terms and conditions of their Award. 

Every Modern Award contains a standard consultation clause that requires employers to consult employees if they intend to put significant changes into effect — which can include changes to their regular roster, work hours, or termination. 

The Award also requires you to consult your employee’s representative (who can be another elected employee or a representative from a union). 

So, if you are intending to reduce your permanent employee’s regular hours or terminate them completely, you must notify employees and their representatives. 

You will have to discuss the changes and provide information in writing as soon as a definite decision has been made. 

It is also important to note that every Modern Award and enterprise agreement has a dispute resolution procedure set out in it.

Further, if you have an enterprise agreement with your employee, the Fair Work Act would have required you to include a consultation term — either one which you have agreed to, or the model consultation term in the Act. 

All in all, regardless of whether your employee is covered by a Modern Award or an enterprise agreement, they will have to be consulted before initiating a major change that will impact their work. 

Alternative Arrangements And Best Practice

Aside from it being a legal requirement under most Modern Awards to consult your employee when making changes to their work, it is also a fair and practical thing to do before making a decision. 

While consulting your employees, you may be able to find mutually agreeable outcomes you may not have thought of — this is always more favourable than making unilateral decisions which could brew tension. 

It is important to avoid building feelings of resentment among your employees as this can eventuate into Fair Work claims. 

The Fair Work Commission are big advocates of their ‘best practice’ initiatives, which they have designed to help employers create and maintain a happier and fairer workplace. You can read their best practice templates and guides here

Letting Staff Go 

If you genuinely have no choice but to let your staff go, then you can look at reducing their hours, making them redundant, or negotiating with your staff to stand them down. 

Even if cash flow is tight for your business, you need to ensure you’re compliant and paying your employees according to their entitlements. 

Key Takeaways 

This is a situation in which communication with your employees is key. 

It’s important to check your enterprise agreements, Modern Awards (if applicable), and employment contracts. 

Importantly, you should always attempt to come to an agreement in collaboration with your employees.

Standing down staff or making them take unpaid leave is not a decision to be made lightly, and it is important to make sure these decisions are legally sound. 

If you need help with any of the above, we’re here to help. Our experienced lawyers can be reached on 1800 730 617 or at team@sprintlaw.com.au

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