Redundancy

Dealing with redundancies…. a guide for employers

During an economic downturn, employers are faced with many difficult decisions.   One of the hardest decisions to make is deciding whether or not to make employees redundant.  
Explaining to staff that they have been made redundant is tough.    Through no fault of their own, they no longer have a job and are left with the stressful situation of finding new employment and looking after their homes and families. 

Simple steps

Whilst is will never be easy, employers can take steps to make redundancy easier for both the employee and themselves by following some simple steps. 
When deciding on the positions that will be made redundant ensure you use a fair selection criteria;

• Provide all affected employees with information about the proposed redundancy and disclose your    selection criteria;
• Consult with the affected employees and listen to their views on the proposal and any comments on how they fit the selection criteria;
• You need to provide reasonable notice of redundancy (generally no more than one month will be required, though this will depend on the particular circumstances).

You should offer and provide to your employees counselling, career and financial advice and retraining, where appropriate.
No matter how much you prepare and consult with employees, redundancy is difficult.

What is redundancy?  When can I make a redundancy?

Redundancy is genuine when the employee's position ceases to exist. This generally occurs in one of the following ways:

• A decline in available work;
• Restructuring, including contracting out work;
• Sale or transfer of the employer's business.

An employer must act fairly and reasonably in its dealings with employees and will be required to show:

• The redundancy is for genuine commercial reasons.
• The provisions of the employment agreement have been observed.
• The employer has acted fairly and sensitively in the way the redundancy was carried out.
• That the action was what a fair and reasonable employer would have done in all the circumstances.

An employer is not entitled to use redundancy as a way of dismissing someone for reasons relating to the employee personally, such as concerns about the employee's performance or reliability.
Under the Employment Relations Act 2000, a duty to act in "good faith" extends to consultation between employers and employees:

• About how changes to the employer's business may affect employees;
• Concerning any proposal by an employer which might impact on employees, including contracting out work or sale or transfer of all or part of the employer's business.

Redundancy Compensation

Redundancy compensation must be paid in accordance with any relevant provision in the employment agreement.  Where the agreement states it is not payable then the employee clearly has no entitlement to compensation.

If the employment agreement does not mention redundancy compensation it will only be payable where the circumstances require it, e.g it has been the employer's past practice to pay and there is no good reason for departing from the practice.

Alternatives to redundancy

Workplace redundancies often lead to low morale and lost productivity.  The remaining employees often feel bitter, sad and a raft of other emotions when redundancies are made
So how can you avoid redundancies when times get tough? In consultation with employees, employers can look at alternatives to redundancies that can lead to a win/win situation for both parties. 

• Work 4 days, not 5.  It only takes five employees to do this, and you have saved one employee salary for a year.

• Ask senior management to take a 5% cut in salary, often, senior people are able to take a slight pay cut for a limited time with much more ease than lower paid employees.   It also sends a positive message to staff that senior staff members are willing to make sacrifices too.  

• Look at excessive spending:  There are always ways to cut costs; ask employees for ideas on how the company can save.

• Ask for volunteers to reduce their hours.

Remember, when you employ people, it costs money.  Advertising, interviewing, hiring, resume checks and training come at a high cost to the company.  When that employee leaves, they take with them all of the company knowledge and skills.

Making the decision to reduce your staff is a difficult decision to make.  As an employer you are losing an asset, an employee that has been trained and become established in your organisation.  From an employee’s perspective, redundancy can be a very difficult and emotional time with many uncertainties ahead.  

Government assistance

To cope with the current world economic crisis, the New Zealand Government has developed a 'ReStart' package for people facing redundancy.
The 'ReStart' package offers short-term help for up to 16 weeks to low and moderate-income families with children, and to people with high housing costs. 
The package offers: 

• A payment for families with children and who lose the In Work tax credit of $60 a week for families of up to three children and $15 a week for each extra child;

• A top up of the accommodation supplement for those who qualify for the maximum payment of $100 more a week;

• Assistance finding a new job.

Anyone who received more than $25,000 in redundancy payments would not be eligible for the In Work tax credit.

How can I support employees who have been made redundant?

1. Help them to update their resume (click here to find out how)
2. Provide counselling / career advice and / or financial advice  

Need more information?  Then call OnlineHR today, on 09 974 8195 for further help.