Redundancy vs JobKeeper: The pros and cons

Australian business owners have seen the government’s JobKeeper payments as something of a saviour. The money they need to help stay afloat during one of the worst economic conditions we’ve experienced in our lifetime.

With the JobKeeper scheme ending in September, clients are asking questions. Many are asking whether they should continue to rely on JobKeeper or start making employees redundant. As qualified HR experts, we explore the pros and cons of both. And, if you have a HR team in your organisation, what you need to be briefing them on for future.

What is JobKeeper?

JobKeeper is supposed to be used as a wage subsidy providing employers with $1,500 a fortnight to top off an employee’s wages or salary. To qualify for the scheme you need a thirty per cent drop in revenue compared to the previous year. However, there are alternative tests for certain businesses, such as those that are seasonal or fast-growing. Larger companies that turn over more than a billion dollars a year need to have witnessed a fifty per cent decline in trade to qualify for the scheme. 

Businesses must apply for the subsidy for individual employees and pay them the subsidy in full, topping up their entitlement. The theory from a HR perspective is allowing employees to stay ‘on the books’ until the economy picks up. Furthermore, until employers can afford to pay their full wages. 

Most permanent employees are eligible for JobKeeper (including part-time and fixed-term contracts as of March 1, 2020), including long-term casuals. Given that in some industries a lot of workers take home less than $1,500 a fortnight, the JobKeeper scheme has actually given some employees a temporary pay rise.

The HR advantages of JobKeeper

Some of the key benefits JobKeeper can bring to your business include the opportunity to: 

• Quickly get the business up and running so that it can operate at full capacity the moment it’s able to
• Avoid redundancies
• Avoid the cost of rehiring staff if business conditions do improve
• Keep people in employment through harsh economic times 
• Find ways to take advantage of employee skills through the downturn and perform many of the tasks that aren’t profitable
• Experiment with new ideas and different approaches to operational costs, with peace of mind knowing your staff still get paid
• An opportunity to explore personal development and training for employees
• Help build a stronger workplace culture by showing teams you have their best interests at heart.

The HR disadvantages of JobKeeper

Despite the generous assistance JobKeeper offers, there are potential disadvantages to relying on it, rather than making employees redundant. These disadvantages may include:

• The potential of making any future redundancies more costly – employees will continue to accrue entitlements and service at their usual rate even if they’re working reduced hours
• Adding to your administrative burden, as you need to register and liaise with the ATO
• The possibility of cash flow issues as you must first pay staff before receiving the JobKeeper subsidy in arrears 
• The potential for a decline in employee engagement, as some staff may see JobKeeper as an entitlement and become less productive.

Is redundancy a better option than JobKeeper?

As someone that works in human resources and deals with situations like this regularly, this is my view. JobKeeper might help businesses that will economically bounce back, however, others won’t. It’s a different case for those businesses where operations are unlikely to return to normal.

Instead of receiving some interim support to help your business through the next six months. Taking JobKeeper means some may simply be delaying the inevitable and making it more expensive for themselves in the process. This could potentially leave yourself as the employer, struggling for survival – something which eventually leaves everyone worse off, not just the employees you need to let go.

Balanced against this, of course, is the fact that JobKeeper can bring real benefits to your business, such as the chance to utilise teams and strengthen your position in any future upswing by introducing new products or services, or using the time for employee development.

Unsure which direction is right for your business? 

The reality is that many businesses may want to try to do the right thing by their employees by taking advantage of the JobKeeper scheme. However, in time, redundancies may be inevitable. In short, what works for your business will come down to your personal situation, the industry you’re in, how your business operates as well as the structure and situation of employees. 

Get in contact with the Catalina Consultants team today if you’re unsure which direction you should take when it comes to making those all-important HR decisions, particularly around employment. Alternatively, if you feel that your business is slowly starting to bounce back, and you’re ready to rethink and restructure your human resources, then we might be able to help with a custom-designed bespoke HR strategy.