Redundancies and employer financial hardship

With the ongoing effects of COVID-19, some businesses are looking at reducing staff, including making redundancies.

When this occurs, employers typically refer to the National Employment Standards to calculate the redundancy package (also known as severance pay).

But what if your business is experiencing financial hardship and cannot pay?

Firstly, it’s important to note that where employees have less than 15 employees, they are generally already exempt from being required to pay the redundancy pay component.

For employers that have more than 15 employees, it is possible to apply for redundancy variations, where the amount may be reduced to a specific amount or nil. There are two reasons an employer can apply for a variation. Firstly, the incapacity to pay. Secondly, in cases where other acceptable employment has been found for the employee.

So, how does the redundancy variation application process work?

  • Employers apply to the Fair Work Commission for a variation for each individual employee.
  • Each case is reviewed individually and the decision can vary from case-to-case.
  • When making an application based on financial hardship, provide sufficient evidence to support your request.
  • When making an application based on obtaining other appropriate employment for an employee, an objective test is used. The Commission reviews the role on offer and makes a comparison to the role being made redundant. They consider a number of things, including pay, location, seniority, hours of work, benefits, job security, family and carer circumstances, workload, and more.

Important | Don’t forget about the notice period!  This still must be paid to an employee when they exit employment via a redundancy…

For more information about redundancy pay, visit the Fair Work website. For specialist advice about your specific situation, contact our HR expert, Lisa Lee for a confidential conversation.