What is a ‘Small Business Employer’?
Under the Fair Work Act 2009 (Cth), a ‘Small Business Employer’ is an employer which employs less than 15 regular employees. The number of employees should be calculated by a simple headcount of the regular employees (this includes casual employees who are employed on a regular and systematic basis) at the time of termination, and must include the employee(s) being terminated. Employees who are employed by associated entities also need to be counted (i.e. employees of an entity that is ‘grouped’ with the employer for tax purposes).
The following employers are examples of Small Business Employers:
- A café business that has 6 full-time employees.
- An IT company that has 8 full-time employees and 5 part-time employees.
- A florist who employs 3 casual employees.
The following employers would not qualify as Small Business Employers:
- A café business that has 15 full-time employees.
- An IT company that has 10 full-time employees and 6 part-time employees.
- A florist who employs 20 casual employees on a regular and systematic basis.
- A wine-making company who employs only 5 full-time employees in its own name, but is ‘grouped’ with another company that employs 30 full-time employees.
What are the benefits of being classed as a Small Business Employer?
Small Business Employers are afforded greater leniency when it comes to the termination of their employees. This is in recognition of the fact that Small Business Employers generally do not have the financial resources or people power to implement sophisticated human resources procedures, including those for the termination of their employees.
Another benefit is that Small Business Employers are generally not required to provide redundancy pay to employees. However, there are some exceptions to this general rule which are discussed below.
How do the unfair dismissal laws differ for Small Business Employers?
In order to be eligible to make a claim for unfair dismissal against a Small Business Employer, a regular employee has to have worked for the employer for at least 12 months. This effectively builds in a ‘probation period’ of 12 months during which a Small Business Employer can terminate an employee without recourse.
Further, a dismissal will be deemed to be fair if a Small Business Employer can demonstrate that they have followed the Small Business Fair Dismissal Code (a copy is available for download from the Fair Work Ombudsman’s website) and that the dismissal is not harsh, unjust or unreasonable.
What are the expectations under the Small Business Fair Dismissal Code in relation to the termination of an employee?
Small Business Employers are expected to show that the employee was given at least one warning (either verbal or, preferably, written) prior to termination. This is a lower threshold compared to other employers. The warning must:
- provide a reason as to why the employee is at risk of being dismissed (the reason must be valid and be based on the employee’s conduct or capacity to perform the job); and
- state that the employee risks termination if his or her performance or conduct does not improve; and
- give the employee an opportunity to respond to the warning and rectify the problem.
The length of time between a warning and subsequent termination of the employee must be determined on a case-by-case basis depending on the reason for the warning or termination. Employers should bear in mind that the employee must have the opportunity to respond to the warning and attempt to rectify the problem.
For summary dismissal, which is where an employee is terminated with immediate effect due to serious and wilful misconduct, a Small Business Employer is not required to give a prior warning.
Summary dismissal usually involves serious or illegal activity or conduct, including theft, fraud, violence and serious breaches of Work Health & Safety procedures.
Small Business Employers should familiarise themselves with the Small Business Fair Dismissal Code before reprimanding or terminating an employee, as the Code can be a lifesaver for them, provided they use it properly.
What are the exceptions to the general rule that Small Business Employers do not have to provide redundancy pay?
Under the National Employment Standards, a Small Business Employer is not required to provide redundancy pay.
However, a Small Business Employer may still have an obligation to provide redundancy pay to an employee if there are redundancy pay obligations under:
- the employee’s employment contract; or
- an industrial instrument (i.e. an enterprise agreement) that applies to the employee; or
- the modern award that applies to the employee (or the modern award preserves an entitlement to redundancy pay under a pre-modern award).
The Fair Work Ombudsman’s website gives examples of some of the modern awards which require certain Small Business Employers to make redundancy payments.
5 common mistakes made by businesses in applying the ‘Small Business Employer’ concessions
Common mistake 1 – Misclassification
Many employers misclassify themselves as a Small Business Employer when they do not actually satisfy the statutory requirements. For example, an employer which is ‘grouped’ with other entities must include those other entities’ employees in the headcount. Many employers also forget to include regular casual employees in their headcount, but the legislation requires that casual employees who are employed on a ‘regular and systematic basis’ are included in the count.
Common mistake 2 – Failure to follow the Small Business Fair Dismissal Code
The Small Business Fair Dismissal Code is a great (and free) resource for Small Business Employers, but many fail to follow the guidelines set out in the Code. If an employee makes an unfair dismissal claim and a Small Business Employer is able to demonstrate to the Fair Work Commission that they followed the guidelines in the Code, the claim would most likely fail.
Common mistake 3 – No warning given
Even though the unfair dismissal laws are comparatively lenient on Small Business Employers, there is still an expectation that those employers will give prior warning of risk of termination to an employee. Failure to provide at least one warning will make an unfair dismissal claim difficult to rebut.
Common mistake 4 – Not ‘genuine redundancy’
Because of the general rule that Small Business Employers are not required to provide redundancy pay, some employers try to use this as a ‘loophole’ to terminate longer-term employees (i.e. employees who would otherwise be eligible to make an unfair dismissal claim). However, an employer cannot make an employee redundant just by calling them redundant.
If the termination is not a case of ‘genuine redundancy’ then the employee would be entitled to bring an unfair dismissal claim. ‘Genuine redundancy’ for the purposes of the Fair Work Act 2009 (Cth) occurs when 3 requirements are satisfied:
- The employer does not need the employee’s duties to be performed by a replacement person (i.e. the tasks have been re-distributed to existing employees, or a downturn in business means the employer has too much existing people power); and
- The employer has consulted with the employee if required under a modern award that applies to the employee; and
- The employee could not be re-deployed in another role or position within the business (or group of businesses, if the employer is grouped).
Common mistake 5 – Inadequate records
Without records to evidence the fact that a prior warning was given to an employee, an unfair dismissal claim can become a game of “he said, she said”. All employers should keep contemporaneous records of any warning letters, emails or other communication (including notes of conversations and meetings). This way, an employer can rebut any dispute about whether performance or conduct issues were raised with an employee prior to termination, or whether adequate reasons for dismissal were given to an employee.
What Small Business Employers must do
Small Business Employers must familiarise themselves with their rights and obligations in relation to their employees. They should also obtain a copy of the Small Business Fair Dismissal Code and follow its guidelines. This could minimise costly and disruptive disputes when terminating employees.
