Redundancy: A small business guide to process and obligations

Redundancy is rarely an easy decision. For a small business owner, it often feels personal because your team is small and the roles are interconnected. When the business landscape shifts, you may find yourself in the position of needing to eliminate a role.

While the Fair Work Act offers some flexibility for businesses with fewer than 15 employees, ​“flexibility” is not a license to bypass procedure. This article breaks down the basics, the specific exemptions for small businesses, and the essential steps you must take to protect your business.

The Basics: What is a ​“Genuine” Redundancy?

Before taking action, you must distinguish between a redundancy and dismissing an employee. A redundancy is about the role, not the person.

A role is genuinely redundant when:

1. The employer no longer requires the job to be done by anyone due to changes in operational requirements (e.g., downturn in business, technology changes, restructuring, financial reasons).
2. The employer has complied with any consultation requirements in an applicable modern award or enterprise agreement.
3. It was not reasonable in the circumstances to redeploy the employee within the employer’s enterprise.

The ​“Need to Know”: The Small Business Exemption

This is where many members ask for clarification. Under the National Employment Standards, employees are generally entitled to redundancy pay. However, small businesses (employers with fewer than 15 employees) are generally exempt from paying redundancy pay.

But take note:

• Being exempt does not mean you are exempt from the process of redundancy. You must still provide notice of termination (or payment in lieu) and ensure all other final entitlements (accrued leave, etc.) are paid out.
• Your headcount is calculated at the time of notice of termination, including the employee(s) being made redundant. 

Avoiding the ​“Unfair Dismissal” Trap

The biggest mistake we see is assuming that because you are a small business, you don’t need to consult or provide notice. Failure to follow proper procedure can open the door to an Unfair Dismissal claim.

To minimise your risk, ensure you can answer ​“yes” to these three questions:

• Did you consult?
• Was redeployment considered?
• Was the redundancy operational?

Your Checklist for a Smooth Process

If you are facing the difficult decision to make a role redundant, follow this roadmap:

1. Check the Award: Always verify if your specific modern award has additional consultation requirements.
2. Document Everything: Keep a record of the business reasons for the change and the steps you took to consult with the employee.
3. Provide Notice: Ensure the employee receives the correct statutory notice period (or payment in lieu), regardless of the redundancy exemption.
4. Finalise Pay: Accrued annual leave, long service leave, and wages must be paid out in the final pay cycle.

Need Support?

Redundancy is a high-stakes process. If you are unsure if your situation constitutes a genuine redundancy, or if you need assistance drafting a consultation plan, do not do it alone. One of our Senior Consultants can assist you.

Access Business Advice Hotline: (08) 8300 0000

As a South Australian Business Chamber member, you receive unlimited free access to the business advisory hotline — helping you navigate challenging personnel decisions with confidence and compliance.