Redundancy - it can be expensive to cut expenditure

In the current financial market, many businesses are looking for ways to reduce costs to maintain profitability during these leaner times or indeed, for some, to prevent the business closing its doors altogether.

When employers review their operating expenditure, there are various items that come into consideration.  One such cost is expenditure on staff salaries.  In addition to the actual salaries, there are statutory superannuation payments and provisions for long service leave, annual leave, sick leave and the like.

This expenditure review must include the calculation of the statutory requirements to be met if a redundancy is under consideration.

Under legislation applicable in Western Australia, a redundancy payment for one employee, will increase the outlay by an employer for that employee by between 7% and 30% of an individual's current wage bill because of a required severance payment of between 4 to 16 week pay based on an employee's years of continuous employment.

In addition, there is still the required notice of termination to be given in accordance with either the contract of employment or at least, at the minimum lawful level stipulated in the Workplace Relations Act.  Employers are also required to comply with the procedural requirements of the Minimum Conditions of Employment Act or the General Order on Redundancy.  Failure to comply with these requirements can be costly if breaches of the requirements are pursued in the Magistrate's Court.

Whilst there is no easy resolution of these issues for employers, it may in certain circumstances be cheaper for an employer and more beneficial to the business to implement other measures than redundancy of employees.

Alternatives to redundancies which could be considered are cost cutting measures such as transferring existing employees to other duties, re-training of employees and reducing work hours to three days a week for a particular business or having employees clear untaken annual leave.  Another factor to be considered is the expertise and skills of trained employees which is lost with the redundancy.

In short, redundancies are not always a short term fix to the success of a business or survival of a business.  Various cost provisions and payments required for redundancies can impose on employers more expense than first meets the eye.  Alternative measures are available and can be used to lessen the costs associated with downturn, rather than drastic redundancy.

For any further information about redundancies please contact Ian Curlewis on 9288 6756 or Michael Jensen on 9288 6944 or Benn Wallace on 9288 6741.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.