ONE in every four Australians is older than 55 – and the United Nations estimates that this will increase to one in three at some point in the next 10 years.
As the average age of the workforce continues to rise, companies will increasingly be faced with issues of managing employees who are approaching the traditional retirement age.
This can be particularly challenging in some industries where certain skills are being phased out, or when workers' fitness levels may impede their ability to keep doing their jobs as they get older.
How can you handle these challenges in a way that is fair for everyone?
Protection for older workers
While in the past it was generally accepted that Australian workers would retire at 65, today Australia has no compulsory retirement age.
If you believe an employee is no longer able to fulfil the requirements of their position, you will need to manage their performance through the standard channels – usually via a formal performance review system.
Retirement must be entirely voluntary – it is illegal to compel an employee to retire, to deny them opportunities or to change their working conditions in a way that forces them to leave.
You also cannot ask employees to sign a document agreeing to retire at a certain age.
Doing any of the above will be an example of direct age discrimination, and forcing an employee to retire because of their age alone would also constitute unfair dismissal under the Fair Work Act 2009.
However, it is a general exception to anti-discrimination legislation if a person receives a benefit due to their age – such as the introduction of an approved early retirement scheme (ERS).
In other words, while it is illegal to compulsorily retire an employee, you can develop a policy that provides benefits for certain groups or classes of employees to encourage them to retire early.
How early retirement schemes can work for you
ERSs aren’t easy to establish, but they can be a very useful part of a plan to reorganise business operations – when a company is aiming to achieve a specific short-term objective.
This can be anything from introducing new technology or processes, to replacing employees with those that have different skills, or even closing or relocating part of the business.
The ERS should be available to a broad group of employees within the business – such as all those who have reached a particular age or with a particular occupational skill. It could also be open to all company employees.
For example, in 2011 Loy Yang Power Management obtained approval for an ERS to reduce its labour costs – and invited its employees to apply for up to 40 positions in the scheme on a first come-first served basis, though there was a veto on applications from certain areas.
Those who accepted the scheme were paid six months’ salary if they had worked for the company for fewer than 10 years, or 12 months’ salary if they had worked there for longer.
Like redundancy payments, ERS payments are eligible for tax concessions – but ERS systems must be approved by the Commissioner of Taxatiosn before any payments are made.
An ERS is unlikely to be approved if it is too similar to a typical redundancy scheme.
The two schemes are fundamentally different – while a redundancy occurs when no-one is needed to perform a role, in an ERS the role can remain open for the position to be refilled quickly.
Further to this, while you may choose what you want the ERS payments to be, redundancy entitlements are set out in the Fair Work Act 2009 and are allocated according to the period of continuous service with the company.
If you are considering using an ERS in your business, you may also wish to consider the implications for any long service leave payments – as the law concerning these will vary from State to State.
Transitioning towards retirement
Employees aged 55 years or more have the right to request a flexible work arrangement – varying either their hours, patterns or locations of work – but you may have a right to refuse it on reasonable business grounds.
You may ask that your employee, when requesting a change in their role, sets out a business case for the change