COVID-19: How Employers can Manage Staff and Reduce Costs
During COVID-19 it is difficult for employers to make decisions about how to manage their staff when their business is required to stop operation, or significantly reduce its hours of operation. However, when making these decisions, employers must be careful to abide by the relevant employment law legislation and the various new COVID-19 laws. This article will help employers understand their options and how to manage their staff lawfully.
When can an Employee be Stood Down?
Under the Fair Work Act 2009 (Cth) (the Act) an employer can stand down an employee where:
- There is a stoppage of work not at the fault of the employer; and
- Because of the stoppage, the employee cannot be usefully employed.
It is important that employers are aware that employers standing down their employees under the Act understand that what constitutes a ‘stoppage of work’ is very limited. Generally, a stoppage of work which is not at the fault of the employer will include industrial action, machinery or equipment breakdown which is not at the fault of the employer, or actions outside of the employer’s control such as a fire, flood or power failure. In terms of COVID-19, it is likely that businesses which are forced to close may stand down their employees as it is not within the employer’s control.
Employers should keep in mind that they must turn their mind to whether the employee can be usefully employed. For example, gyms may not stand down an employee if the gym has moved to online workouts which the employee could lead.
In addition to standing down employees under the Act, employers may be able to stand down an employee under the terms of an enterprise agreement or their employment contract. Generally the enterprise agreement or employment contract will contain additional steps that the employer must follow before standing down the employee, such as giving notice to the employee and consulting with them prior to making the decision to stand them down.
The benefit for an employer standing down an employee is that they are able to maintain the employment relationship and save costs on wages. The employer is also likely to qualify for the JobKeeper subsidy to pass on this payment to the employee.
The Australian Government has recently passed the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) which implements the $130 billion JobKeeper subsidy.
As an employer, it is important that you understand how the subsidy works in practice, including:
- That you must apply to the Australian Taxation Office (ATO) for the JobKeeper subsidy for eligible employees;
- Your business must meet the decrease in turnover test (which is generally that your business turnover has decreased by 30%);
- You must continue to pay your employees. If your employees are not working (for example, are stood down) you must pay the employees at least $1,500 per fortnight before tax;
- The ATO will then reimburse you $1,500 for the payments made to each eligible employee;
- The payment of $1,500 must be paid to employees regardless of whether their usual pay was less than $1,500 per fortnight;
- For employees who earn more than $1,500 per fortnight and are working their regular hours, the employer must continue to pay their usual salary. The JobKeeper payment will simply act as a part-subsidy;
- PAYG withholding taxes will continue to apply, where the rates are applicable to the gross amount paid, whether that is the minimum $1,500 or more.
The benefit of the JobKeeper payment is that it provides financial relief to employers while their turnover has decreased. As the employee is still employed, it is also likely that they will return to work when the impacts of COVID-19 subside. We recommend that employers seek advice from their accountant as to whether they are eligible for the JobKeeper payment and that employees are being paid correctly.
Unfortunately, some business may need to permanently close or reduce the number of employees due to COVID-19. In these circumstances where the business needs to make permanent changes, an employee may be made redundant.
An employee is made redundant where:
- The employee is terminated at the employer’s initiative;
- The termination is because the employer no longer requires the job to be done by anyone or because of the insolvency or bankruptcy of the employer.
The employer should understand that an employee should only be made redundant where, for the foreseeable future, the employee’s position is not required to be completed by anyone. This is more of a permanent nature, as opposed to temporarily standing down an employee.
If the employer is facing cashflow issues, making an employee redundant may pose difficult as an employee is entitled to a minimum redundancy payment once they have completed 12 months of service. The employee must also be paid out their accrued entitlements, such as annual leave. This will be particularly difficult for employers whose employees have a long service record and have accrued long service leave.
To assist with cash flow of the business, the employer may also consider:
- Agreeing with the employee for them to take annual leave while the business is quiet;
- Some awards permit an employer to direct an employee to take annual leave where it is reasonable in the circumstances. It may be reasonable where the employee has an excessive annual leave balance or the business is being shut down for a period of time;
- Agreeing with the employee for them to take a period of unpaid leave;
- Agreeing with the employee to amend their employment contract to:
(i) Temporarily reduce their hours of work;
(ii) Temporarily reduce their pay; or
(iii) Place a permanent hold on any annual or agreed pay rises.
It is difficult to predict when and how the current restrictions imposed under COVID-19 may begin to be lifted. However, it is important that employers consider their current financial position versus the need to maintain employees for when their demand for goods or services increase.