When you run a business and hire employees, there are certain duties and obligations you will owe those employees as their employer. Even when you’re letting those employees go, their departure from your business does not immediately free you from legal responsibility. 

Prior to releasing an employee from their Employment Contract, you’ll need to make sure they have received everything they are legally owed, such as any annual leave payouts or a redundancy payment. 

So, what is redundancy and does it affect small businesses?

What Is Redundancy?

Redundancy occurs one of two ways: 

  • When an employee’s job is no longer needed for the business’ operations
  • The business has become bankrupt or insolvent 

The above are strict requirements and not general guidelines. Therefore, you cannot dismiss an employee and claim redundancy only to hire another employee to do the same or a very similar job the next day. 

One of the last things you want is a former employee claiming unfair dismissal. So, if you’re confused about whether or not your situation counts as redundancy, talk to an employment law expert to get some clarification. 

Do Small Businesses Have To Pay Redundancy?

No, small businesses are exempt from paying redundancy. 

For most businesses (that are not considered a small business), they will owe their employees a certain period of redundancy payments after having to let them go. The exact amount for this payment will depend on matters such as how long the employee worked for their employer and how many hours they worked per week. 

What Does The Fair Work Act Say?

According to the National Employment Standards (NES) set by Fair Work Australia, this is a legal requirement. Therefore, all employees are owed this right. Small business owners, however, are exempt from this rule. 

According to Fair Work Act 2009 (the Act), a small business is an establishment that employs less than 15 people. 

If your business has less than 15 people, then you likely qualify as a small business and do not need to pay your employees redundancy. 

However, you may still owe your employees redundancy payments if certain modern awards apply, despite being a small business by definition.

The payment will depend on the exact award. A  few of them include: 

At Sprintlaw, our lawyers can have a look at the relevant award that applies to your business and advise you on how you can comply with its requirements. Learn more about our Award Compliance package to protect your small business. 

What Else Is Involved In Redundancy?

Another thing you should know about redundancy is that   there are industry-specific redundancy schemes. Not all sectors have this, however, if your industry has its own redundancy scheme, then you are required to follow this.  

You can contact Fair Work to learn more about your obligations and any awards or schemes that might be owed to your employees. Remember – it’s considered a breach of employment regulations if employees aren’t given their proper entitlements, so be sure you’re on top of it. 

Alternatively, our legal team here at Sprintlaw are also happy to answer any questions you may have. 

What About Unfair Dismissal?

As we mentioned before, you want to avoid unfair dismissal at all costs. If you are found to have dismissed an employee with redundancy actually being present, the employee can claim damages which can be detrimental to both your business’ finances and reputation. 

Unfair dismissal occurs when an employee has been terminated unfairly.  When it comes to redundancy, if there is no genuine reason for the redundancy, then you can be accused of unfairly dismissing an employee. 

It’s important to seek proper legal advice and proceed with caution before making any major decisions. Genuine reasons of redundancy can include: 

  • The introduction of a new technology that means an employee’s job can now be completed by a machine
  • The business has had to shut down due to becoming insolvent 
  • The business has moved and there is a geographical nature to the work 
  • The job has no further need for existence as the tasks have been carried out
Josh owns a company where some data entry tasks are required to be completed. Josh has hired Henry as his official data entry clerk. However, the introduction of a new software that Josh recently purchased means that Henry’s data entry task can be completed by a machine rather than manually. In this case, Henry’s redundancy is likely to be considered genuine. 

We’ve written more about unfair dismissal and what you’d need to know as a business to avoid this situation altogether. 

Key Takeaways

If you’re a small business, there’s a chance you don’t need to pay redundancy to your employees. However, it’s important to make sure you’re following all the proper legal regulations and being aware of certain exceptions, such as modern awards. 

To summarise what we’ve discussed: 

  • Redundancy occurs when an employee’s job is no longer required or their workplace has become bankrupt or insolvent
  • When an employee’s job is declared redundant, their former employer owes them certain payments 
  • A small business will generally not have to pay redundancy unless their employees are owed a particular modern award 
  • In addition to a modern award, there are also industry-specific redundancy schemes that may need to be followed 
  • If you haven’t followed the correct legal procedures or taken a misstep in your obligations as an employer, you could be accused of unfair dismissal 

If you would like a consultation on redundancy or obligations you may have as a small business owner, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

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