How Small Business Owners Can Avoid Messy Staff Dismissals
These days, the likelihood of being in a plane crash is about one in every million flights. However, if an accident were to happen, it’s most likely to occur during landing. In fact, over 50% of all commercial flight accidents happen during this phase.
If you run a small business, you know the chances of a ‘crash’ are far higher than one in a million! There are many decisions that can undermine a business, and one of the riskiest is hiring staff.
Why Hiring Staff Is Risky
Hiring staff can be risky due to several factors:
High ongoing costs: Employees represent a significant financial commitment.
Unpredictability: People can be unpredictable and may not align with your business goals.
Difficult to reverse: A bad hiring decision can be challenging to undo.
Nevertheless, employees are crucial for business growth and can bring great satisfaction to business owners who love seeing their staff thrive.
Much like pilots use checklists to reduce risks during landing, consider this blog a checklist to reduce your risk when hiring staff.
Understanding the Small Business Definition in Australia
First, it’s essential to know if your business qualifies as a small business. In Australia, a small business is defined as having fewer than 15 employees under the Fair Work Act. This distinction comes with its own set of rights and obligations, particularly around employee dismissal. If your business falls under this category, the following advice applies specifically to you.
Do You Really Need to Hire Someone?
It’s easy to think you need to hire staff to grow your business, but before making that decision, ask yourself:
How will the new hire enhance your business model?
Will the hire’s cost be offset by the revenue they generate, directly or indirectly?
Could you augment other staff with AI and alleviate the need to make a new hire? Check out this article for more on AI as an augmentation to your exisiting staff.
Have you considered alternatives, such as contractors or partnerships with other businesses? These options can be less risky.
Maximise the Usefulness of Job Interviews
Once you’ve determined that hiring is the right decision, it’s important to get the most out of your interviews. I write extensively on improving your interviews here. Focus on the person, not the position. Learn all you can about the candidates, try to understand what makes them tick… then you will be in a good position to assess their suitability for the position you need to fill.
Onboard Staff Well
When you bring someone into your business, make sure they understand their role and the value they are responsible for creating or maintaining. You can do this by utilising the Business Model Canvas. Provide a clear roadmap for how they can achieve that value for your customers. I teach you how to onboard staff in this way here.
Probation and the First 12 Months of Employment
All employment contracts should specify a six-month probation period, during which both parties can assess whether the employment relationship is working. For small businesses, the first 12 months of employment function as a pseudo probationary period under Australian law. This gives you the flexibility to dismiss an employee without the risk of an unfair dismissal claim. This is a significant advantage, as it allows you to part ways with a poor fit without going through extensive justification or a long performance management process.
While the law doesn’t require a detailed explanation for dismissal within the first 12 months, it’s still good practice to provide a brief and professional reason, ideally framed positively. For example, mention three positive traits before highlighting the mismatch with business requirements.
Dismissing Employees with More Than 12 Months of Service
Once an employee has been with you for more than 12 months, this special provision for small businesses ceases. You’re left with three main options: a genuine redundancy, a mutually agreed severance package or performance management leading to dismissal.But first a quick exception:
Serious Misconduct: Immediate Dismissal
Serious misconduct, such as theft, fraud, or endangering health and safety, justifies immediate dismissal without the need for a formal process. You can terminate the employee’s contract without delay in these cases. Just be sure to have evidence on hand for the former employee’s misconduct.
Redundancy: Doing It Right
If redundancy is your chosen path, you need to ensure the role is genuinely no longer required. First, check the employee’s award and comply with all legal requirements regarding notice and severance pay. You can use the Fair Work Ombudsman’s redundancy calculator to confirm these details: Calculate Redundancy Pay.
To proceed with a redundancy, you must be able to clearly explain why the role is no longer needed. It’s important to note that you cannot justify a redundancy by simply redistributing the employee’s tasks to others in the business. You need to demonstrate that the role itself is not required by your business. Here is an effective way to build a narrative that clearly explains why the redundancy is genuine:
Start with the title of the outgoing employee. If they have a leadership role, you need to create a clear narrative as to why this leadership is not presently required. If they have a more junior or frontline role, you must be able to create a narrative explaining why you need to create a leadership position at the expense of this frontline position.
If you need further evidence in your narrative, look at specific responsibilities in their position description. You need to be able to explain how the majority of these responsibilities are no longer required. Again, you can explain that there is insufficient work to warrant the position or instead explain that there is need for a leadership role in order to keep the business going and these responsibilities are no longer a priority for the business.
In addition, you must show that you’ve made an effort to find alternative work within your business for the affected employee. In some cases this will require you to offer the affected employee a job that has less responsibility and lower remuneration. You are not required to offer them an alternative role that requires skills beyond their capability.
Avoiding Performance Management
Performance management can be a lengthy and burdensome process, which is why it’s best avoided when possible. However, if you cannot prove the redundancy is genuine, you must begin performance management immediately. Be aware that this process can take at least three months, so starting early is key.
The Importance of Generosity
Although small businesses may not be legally required to offer severance pay or long notice periods, I recommend taking a generous approach. Offering a severance package that exceeds the legal minimum can boost your reputation and preserve morale within your business. Read this article to learn how to oversee an effective performance management process.
Conclusion
Hiring staff is one of the riskiest moves a small business can make, but by following this checklist, you can minimise the chances of needing to dismiss employees later. And if you do need to let someone go, following these guidelines will help you avoid a protracted or messy situation.
If you need advice on managing staff, feel free to reach out for a consultation.
