Voluntary redundancy: the best goodbye

If your business is facing increased operational costs, a change of role requirements, or developing standardisation, an employee’s role may no longer be necessary and there may be a reduction of your workforce. When this happens, employees may either be transferred to a different role within the organisation or are made redundant. An organisation may choose to carry out a period of voluntary redundancy, which is not a matter of firing, but in fact a willing resignation. But why would someone willingly hand in their resignation? This Business Kitz article will provide the answer, along with all the ins and outs of the risks, notice, pay and other legal requirements to ensure your business carries out a genuine redundancy. 

What is a voluntary redundancy?

Voluntary redundancy is allowing employees to choose to resign of their own accord before a selection process can take place. Generally, the employer will offer a financial incentive, (redundancy pay) which is paid at the employee’s usual pay rate and covers the minimum notice period. Redundancy pay may vary depending on the duration of the employment and whether the employee was in a full-time or casual position. In cases of voluntary redundancy, a written notice of termination does not have to be supplied when payment is made to the employee instead. 

What is redundancy payment?

So what is an employee entitled to receive? The amount of pay is subject to the base payment for their ordinary hours of work and the length of time they were employed within the organisation. Under the National Employment Standards a base rate of pay does not include:

  • Overtime or penalty rates;
  • Bonuses or incentive payments;
  • Monetary allowances; or
  • Loadings.

Who does or does not apply for redundancy pay?

The general rule of eligibility is that one was not in a casual contract and worked at your business for at least one year. Employees who do not receive redundancy payments are:

  • Casual employees;
  • Employees contracted for temporary or seasonal work;
  • Employees whose continued service is less than 12 months;
  • Trainees and apprentices;
  • Employees terminated due to serious misconduct; and
  • Employees of a small business.

A small business is classified as an organisation that employs less than 15 employees at the time of the redundancy notice and is not required to pay redundancy payments when an employee resigns, as outlined in the Fair Work Act 2009.

What if the business is bankrupt or goes into liquidation? 

If a business needs to close their doors due to a lack of profits, funds, management takeover or other external factors, employees can receive help through the Fair Entitlements Guarantee (FEG). Employees are able to receive their unpaid entitlements including their wages, as well as other payments such as long service leave, annual leave or redundancy pay. 

Positives of voluntary redundancy

Can there be any positives to breaking up with your employer? Well, the relationship may not necessarily be ‘broken’ but rather exactly what you were looking for. Or it may be a no-hard-feelings type of bittersweet, with an emphasis on the ‘sweet’. An employee who chooses to accept the offer to voluntarily resign may do so if they have a personal reason for wanting time off work, are already close to retirement, or in some cases are not inherently loyal to the organisation. Therefore, a period of voluntary redundancy may leave the business with a more committed, engaged and satisfied workforce and avoids putting a damper on morale. It also serves as a civil method of mitigating conflict and maintaining relationships with all stakeholders, where nobody is targeted specifically and the employee voluntarily resigning is given their payment of entitlements. 

Voluntary redundancy can be positive

What are the associated risks?

The ideal scenario is when an employee opts to carry out a voluntary redundancy prior to a consultation and a selection process, as this may present the risks of age discrimination or any other form of discrimination or further legal issues. An employee may contact the Fair Work Commission if they feel there was an unfair dismissal, dismissal under general protections or unlawful termination, including complaints made regarding workplace rights. It is best practice for a business to engage in open communication, consult with employees and follow the requirements for a genuine redundancy (when the job in question no longer needs to be done by anyone) during a period of voluntary redundancy. 

Legal advice 

While voluntary redundancy may sound like an end of an era, it can actually present new opportunities and indicate growth within a business. Voluntary redundancy is a process of communicating changes made within the business or external environment, such as new technology or removing a job role, and offering employees a financial incentive to resign. If your business is undergoing operational changes and is wanting to reduce its workforce, you may want to consider carrying out a period of voluntary redundancy. Business Kitz has a wide range of employment agreements and customisable templates available via our subscription service! If you do require assistance with a voluntary redundancy or are facing legal issues with a previous employee, our sister company, Legal Kitz can help you with any concerns you may have! You can book a free 30-minute consultation with their experienced and highly qualified team via our website now.

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