Unfair dismissal, are you a ‘Small Business Employer’?

What is a “Small Business Employer”? Glad you asked!

For the purposes of the obligation to pay Redundancy Pay, a Small Business Employer is an employer that employs less than 15 employees, including full-time, part-time and regular and systematic casual employees. Each full time, part time and long term casual employee will count as one employee. A long term casual employee is one who has been employed on a regular and systematic basis for at least 12 months.

However, for the purposes of unfair dismissal (until 31 December 2010) a small business employer is an employer that employs less than 15 full-time equivalent employees, including full time, part time and regular and systematic casual employees. Therefore, for unfair dismissal we currently have a broader definition of a small business employer.

From 1 January 2011, this method of calculation will change to less than 15 employees based on a head count of total employees rather than full-time equivalent employees.

In other words, after 31 December 2010, the relevant definition of “Small Business Employer” for all purposes will be an employer that employs less than 15 employees on a total head count, including full-time, part-time and regular and systematic casual employees – so the definition of “small businesses” will be narrower.

Note also that annual turnover has no relevance to the definition in either case.

How does the situation differ for Small Business Employers?

There are special unfair dismissal arrangements that apply to small businesses. These arrangements simplify the dismissal process for small businesses. They recognise that small businesses usually:

  • don’t have big human resource departments to help them;
  • can’t afford lost time; and
  • can’t find other positions for employees.

Small business employers will benefit from:

  • a minimum employment period of 12 months instead of 6 months (employees can’t make an unfair dismissal claim in this 12-month period);
  • a simple Fair Dismissal Code to help employers ensure dismissals are not unfair;
  • a specialist service for small and medium sized businesses from the Fair Work Ombudsman; and
  • no obligation to pay redundancy pay – but note the narrower definition of “Small Business Employer” here – less than 15 employees on a total head count. (section 121 FWA)

Example

If Business X has:-

  • 11 Full time employees
  • 3 Part-time employees working ¾ time &
  • 2 Regular casual employees working on average 2 days per week

Then:-

  • Business X has 16 employees on a total head count
  • Business X has 11 + (3 x ¾) + (2 x 2/5) = 11 + 2.25 + 0.8 = 14.05 full-time equivalent employees

Therefore:-

  • Business X is not a small business employer for the purposes of redundancy, therefore is liable to pay redundancy pay; but
  • Business X is covered by the Small Business Fair Dismissal Code until 31 December 2010.

After 1 January 2011, Business X will no longer be covered by the Small Business Fair Dismissal Code.

Please call us on 1300 654 590 if you require any assistance with employee matters, or wish to better understand your obligations under the Fair Work Act.


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