Small Business Redundancy: How to Manage It Legally and Ethically

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Let’s be real. Redundancies suck. No one starts a business dreaming of letting people go. But sometimes, whether it’s because of cash flow issues, market shifts, or a full-blown restructure, making roles redundant is the only way forward.

If you’re a small business owner in Australia, you’re probably juggling limited resources and a heap of responsibility. And when it comes to redundancy, getting it right legally and ethically is non-negotiable.

At HR Gurus, we’re here to help you handle the hard stuff. This guide will walk you through the redundancy consultation process step by step, with plain-English advice and no HR jargon.

What is redundancy?

Redundancy happens when a job is no longer needed. It’s not about performance or behaviour. It’s about the role itself being made unnecessary due to changes in the business.

For small businesses, this can be especially tricky. You still need to comply with the Fair Work Act, follow the right process, and treat people with respect throughout.

Your legal obligations as a small business

1. Know your responsibilities

There have been some important updates to the Fair Work Act that now affect small businesses during insolvency. Even if you have fewer than 15 staff, you may need to provide redundancy pay in some situations.

Here’s the short version:

• If insolvency proceedings happen within six months of a redundancy, you may owe redundancy pay.
• Insolvency practitioners are now required to assess redundancy pay before dismissing staff.
• Ignoring this could land you in hot water, including penalties or criminal charges.

2. Make sure it’s a genuine redundancy

This is where a lot of businesses go wrong. A genuine redundancy means:

• The role is truly no longer needed.
• You’ve met consultation requirements under the relevant award or agreement.
• There’s no suitable role you could redeploy the employee into.

If you miss any of the above, you could be hit with an unfair dismissal claim.

3. Follow the rules on notice and entitlements

Even if redundancy pay doesn’t apply to you, you still need to:

• Give the correct written notice (this depends on how long the employee has been with you).
• Pay out any accrued entitlements like annual leave or long service leave.

How to handle redundancy the right way

Doing it legally is one thing. Doing it with empathy and integrity is another. Here’s how to approach redundancies in a way that protects your people and your business.

Be clear and transparent

Don’t sugar-coat it. Be honest about what’s happening and why. Employees deserve clarity, even when the news isn’t good.

Offer support

If you can, provide access to outplacement services like resume help, interview prep or career coaching. It makes a difference.

Listen and consult

Even if you’ve already made the decision, proper consultation is required. Let employees share their thoughts and ask questions. It’s about respect and fairness.

Explore all other options first

Before you cut roles, consider:

• Reducing hours
• Redeploying staff into other roles
• Offering voluntary redundancy

Sometimes a little creativity can save a lot of pain.

Your small business redundancy checklist

Here’s how to manage redundancy in six steps:

1. Assess the need: Back up your decision with data, not just gut feel.
2. Plan ahead: Map out the who, what, when, and how.
3. Consult properly: Especially if your team is covered by an award or agreement.
4. Handle the admin: Give correct notice and pay all entitlements.
5. Support your people: Help them move on with dignity.
6. Communicate with the rest of the team: Keep morale intact and rebuild trust.

How HR Gurus can help

We work with small businesses across Australia every day. We know the Fair Work system back to front and we cut through the noise to get you clear, actionable advice.

Here’s what we can help with:

• Legal compliance under the Fair Work Act
• Drafting communication plans and consultation templates
• Navigating redundancy selection criteria
• Support with redeployment or outplacement
• Strategic workforce planning to help you avoid redundancies in future

Prevent redundancies with better workforce planning

Let’s talk prevention. Most redundancies happen when things weren’t planned well from the start. That’s why we’re big on workforce planning.

Our Workforce Planning services help you:

• Spot skills gaps and plan for growth
• Build succession plans so you’re never left in the lurch
• Match your staffing levels to your business needs
• Introduce flexibility to ride out the rough patches

Plan well and you’ll have fewer painful decisions down the track.

Final word

Redundancies are tough. But with the right approach, you can handle them with care, compliance and confidence.

If you’re facing hard choices and want to make sure you’re doing things right, we’re here. HR Gurus can help you protect your business and your people. Need support with redundancy or workforce planning?

Get in touch and let’s make a plan that works.