Voluntary redundancy occurs when an employee volunteers or agrees to be made redundant.
In most cases of voluntary redundancy, the employer offers a financial incentive to an employee to voluntarily resign, ideally subject to a formal Deed of Release which ends the employment relationship and generally prevents the employee from bringing a successful claim against the employer.
In effect, the business benefits as they do not have to undergo the trauma and turmoil associated with downsizing, including reputational risks which arise from such discussions. The business may be able to forego the protracted consultation processes that are required to effect a genuine redundancy.
A genuine redundancy occurs when a business no longer requires anyone to do the employee’s job. Employers should follow a fair procedure for redundancy, including consultation (where required) with the relevant employee as to why the role is being made redundant and explore options to keep the employee in the business.
Reasons for voluntary redundancy
Each company has their reasons for wanting to offer voluntary redundancy.
From an employer’s perspective, offering voluntary redundancy may save them the hassle of making the difficult decision of deciding which roles and team members to make redundant if the circumstances of the business are such that the role is no longer needed. It will also minimise the impact on morale and productivity and may prevent any lingering bad blood between the organisation and employee, both of which could have a negative influence on client and staff relationships.
However, it is important to note that voluntary redundancy is not a way to avoid paying for redundancy payments, if applicable, and other entitlements owed to the affected employee. Payment of entitlements is still required.
Voluntary redundancy payment
The National Employment Standards (NES) usually set out a minimum redundancy or severance payment for permanent employees based on their length of service, though some awards or registered agreements may have Industry Specific Redundancy Schemes that set out different entitlements. Although not all employees are entitled to redundancy pay, if they are, it usually depends on how long the employee has been employed with the business, even though it may have changed hands during their employment. Unauthorised unpaid leave generally won’t count when determining the length of service, so keep track of leave.
Generally, for an employee to be eligible for redundancy payment, they must have been working with the business for at least one year and the business needs to have fifteen or more employees at the time, including the employees whose roles are being made redundant. However, it is important that you check for any exceptions in the applicable Award or registered agreement as sometimes the employee will get redundancy pay irrespective of their length of service and regardless of the size of the business.
Risks associated with voluntary redundancy
If the process is not properly considered or planned, the business risks losing its best and brightest, who may opt to depart in order to cash in on the entitlements and incentives offered. This talent drain occurs because the best and most experienced employees are precisely those who are most likely to obtain jobs in the open market.
To avoid this problem, businesses may endeavour to ensure that the voluntary redundancy is targeted at specific classes of employees. However, this may also incur problems as targeting may be considered discriminatory – particularly if the decision is based either directly or indirectly on age or gender.
Hybrid redundancy
Voluntary redundancy can be incorporated into a traditional redundancy approach. Whilst this may offset some of the benefits, it also mitigates many of the risks associated with targeting. If you would like to engage with this approach you should speak to an appropriately qualified professional.
Employee request for voluntary redundancy
Should a business wish to consider approaches made by an employee for voluntary redundancy, it is recommended that a formal policy is implemented to ensure consistency and fairness in dealing with each request.
While employers are not required to approve each offering for voluntary redundancy – they must be careful about who they approve and how they approve it or else they might be at risk of a claim being lodged against the business.
Peninsula can help you understand requests for redundancy and other employee entitlements. Call our team on 1300750491 to learn more.
This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.