Deciding when to retire can be a challenging time for the individual. Employees in Australia have several options around the timing of their retirement and arrangements for future income. If you are responsible for overseeing the management of staff retirements, you need to understand these options and the related employer responsibilities.
By the end of this topic, you will understand the following:
- employer responsibilities when employees are nearing retirement
- how to assist employees in planning for retirement
- how to manage age-related performance issues
- how to provide flexible working arrangements for mature-aged employees
- separation process tasks for retirement.
Under the Fair Work Act 2009, an employer cannot dismiss an employee because of their age or force them to take compulsory retirement.
It is illegal for an employer to:
- discriminate against an employee on the grounds of age
- state that an employee is unable to perform their duties because they are a certain age
- ask an employee to sign an agreement that they will retire when they reach a certain age8
In these situations, an employee may be able to claim unfair dismissal.
Note
Compulsory retirement is when an employer:
- persuades an employee to retire
- treats an employee in such a way that they are forced to retire
- retires an employee without consultation with them and their agreement
- this is sometimes referred to as constructive dismissal.9
Approved Early Retirement Schemes
Employers can offer early retirement payments to encourage employees to retire early or resign. The payments are:
- tax-free up to a limit based on the number of years worked
- not part of the employee’s Employment Termination Payment (ETP)10
The Commissioner of Taxation must approve any scheme before payments can start. Consult with your Company’s accountant for advice on this complicated issue.
Pre-Retirement Contracts
A pre-retirement contract is an agreement between an employee and their employer describing the terms and conditions negotiated for the employee’s retirement.
These contracts are often used in the education sector to assist universities and other organisations in planning staffing needs.12
Employers are not responsible for educating employees about the financial implications of retirement, such as superannuation and Centrelink income options. However, it is a good business practice to assist employees in gaining this knowledge if they have not done so for themselves.
Some organisations can provide financial advisers to assist individual employees. If this is not financially possible, employers can ask the default superannuation fund to hold on-site information sessions and offer one-on-one meetings to interested employees.
Other aspects of employee retirement need to be considered by employers.
These include:
- workforce planning to forecast future labour, skill and knowledge needs in the medium and long term
- retaining mature age employees as Australia’s workforce ages
- offering flexible work arrangements to support changing physical capabilities and allow more time for family obligations and developing social connections outside of work
- risks involved if employee performance declines to unacceptable levels, and developing performance management strategies to deal with these
- reviewing WHS systems, job design, policies and procedures to provide a safe workplace as employees age
- communicating with each employee to understand their decisions about retirement planning and ensuring required administrative tasks are carried out, for example, liaison with superannuation funds.
If employees can no longer perform their duties as required because of their age, this can be managed as a performance issue. Regular performance reviews and discussions help the employer and employee assess skills and capabilities over time and provide opportunities to talk about retirement planning.
Businesses can prepare a retirement policy that describes the legal requirements and options available within the organisation for employees nearing retirement age. These options should support the needs of the business and provide benefits to the employee and be legally compliant.
It is essential to understand and plan for all aspects of employee retirement, not just the financial obligations of a business. Your role in overseeing aspects of managing voluntary and involuntary termination may offer opportunities to address these broader issues in your organisation.
Employers can offer flexible working arrangements for employees over 55 years. These can benefit businesses by retaining skills and corporate knowledge and decreasing recruitment and training costs.
Under the Fair Work Act, Employees over 55 years can request a flexible working arrangement if they:
- have worked with their employer for at least twelve months
- are long-term casual with a reasonable expectation of continuing regular employment with their employer.13
Flexible working arrangements for mature employees can include:
- phased retirement through gradual or pre-retirement
- partial long service
- deferred or post-retirement.
Any flexible working arrangements negotiated with an employee must comply with the conditions of their award, employment arrangement or contract.14
The following summarises critical points for these arrangements.
Gradual Retirement
The employee volunteers to reduce their working time or workload over a period of time, through:
- part-time employment
- job sharing
- pay averaging for purchasing
- additional annual leave
- partial long service
Partial long service leave
Long service leave spreads over time. The following rules apply:
- eligibility depends on the employee’s award, employment arrangement or contract
- if there is no provision, an employee and employer can negotiate an arrangement
Deferred Retirement
Extending employment after retirement age, subject to employer approval and/or proof of fitness. May include:
- part-time work
- job sharing
- pay averaging
- casual or contract work
How to Develop a Flexibility Policy
According to the Fair Work Commission, a business could develop a flexibility policy that explains:
- the available types of arrangements
- the available types of arrangement
- how to make a request
- how will requests be considered
- how will requests be responded to
- how the details of flexible working arrangements will be documented
- how flexible working arrangements will be monitored and reviewed
- who can request a flexible working arrangement?15
Case Study
Mika has worked with her Manager for eight years, and they are both in their late 60s. Mika’s Manager, Jo, is the Director of a community health clinic, which is part of an extensive regional health network.
The General Manager of the network has been talking to Jo about restructuring the workforce at the clinic, and Mika has helped Jo to canvas input from clinic staff and prepare two possible restructuring models.
When one of these models is accepted by the General Manager, Jo decides this will be an excellent time to retire and gives a long notice period of several months. Mika decides to retire at the same time. The General Manager decides that her role is unnecessary in the new structure and will not be filled.
The health network takes much longer than anticipated to put the clinic’s restructure in place and advertise for a new Director. Tension develops between Jo and the General Manager, and Mika is asked to name a date for her retirement, which she does. When this day comes, Jo is still employed as the Director, the restructuring is planned but has not started, and advertising for the Director position has just begun.
Mika offers to remain on a contract to work with Jo as needed until the new Director is appointed and Jo retires. It has been decided that the new Director will carry out the restructuring. Jo leaves when the new Director takes over, and the new Director offers Mika another contract for two months to assist with the handover.
Mika agrees, and everyone, especially the clinic staff, appreciates her flexibility.
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