Dealing With Redundancies

It can be hard to do but sometimes it becomes necessary to reduce your workforce. This is becoming a trend for businesses in the current economic climate but how do you know if this is the right decision for your business? And how do you go about it?


Is Staffing Where I Need to Cut Back?

Look at all of your options before coming to a decision. Sometimes cutting staff can also mean cutting revenue or could be a good short term solution but have negative long term effects. Assess first whether you can reduce other costs and what will be most effective for your business.


How Do Go About It?

As any employer knows, there are a lot of laws involved when dismissing staff. For the dismissal to be considered a redundancy it must follow certain conditions (see what isn’t considered redundancy) and you may have to allocate redundancy pay.

Here are some of the things to consider when you have to make a decision:

  1.   Review and calculate entitlements such as annual leave and long service leave
  2.   Review employment agreements or relevant awards
  3.   Consider taking advice from a specialist regarding the possibility of paying a tax-free “bona fide” redundancy payment to your employee(s)
It’s also important to consider the psychological effects redundancy can have on your employees. Being made redundant can be very emotionally difficult so think about how you can deliver the news in a private, sympathetic manner.


How Much Redundancy Pay Should I Give?

Under NES an employer must allocate pay on the basis of how long each staff member has worked for you and their base rate of pay. These guidelines are available here. You may choose to give a larger sum or you can apply to the Fair Work Commission to pay less. There are also conditions under which you do not need to allocate redundancy pay.




by Scott Sharp

Scott is a Senior Accountant at Insight Accounting advice. He has a Bachelor of Commerce and is a registered tax agent. Scott’s experience covers all facets of accounting but he specialises in small businesses and SMSFs.


The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.