Redundancy is more than a financial decision: The human impact matters
Recently, a senior leader sat across from me and described one of the hardest decisions they had faced in their career.
Their organisation was under financial pressure. Costs had increased, forecasts were uncertain, and after exhausting other options, redundancies were being considered.
"What people do not see," they said, "is that this affects leaders too."
By Matt Stanton, Clinical Psychologist at Life Matters
They were not talking about spreadsheets, budgets, or organisational charts. They were talking about the weight of knowing that people’s lives, families, routines, and sense of stability may be changed by a decision they never wanted to make.
At the same time, in therapy rooms across Australia, employees are speaking about a different side of organisational uncertainty. Anxiety about restructures. Worry about job security. Sleepless nights. Financial concerns. Questions about what comes next.
The reality is this: Redundancy is not simply a financial or administrative process. It is a significant human event.
For some organisations, workforce restructures and redundancies may be unavoidable. Economic conditions continue to place genuine pressure on businesses, and difficult decisions are sometimes necessary to ensure long-term sustainability.
However, while organisations rightly focus on legal obligations, the psychological impact of redundancy is often underestimated.
Employment provides more than income
For many people, work contributes to identity, purpose, routine, confidence, social connection, and psychological wellbeing. It can shape how people see themselves and how they contribute to their family and community.
When employment ends unexpectedly, people may experience grief, uncertainty, anxiety, loss of confidence, shame, financial stress, or concerns about future employability. Even when redundancy packages are fair and the process is lawful, the emotional impact can still be significant.
Importantly, the impact does not stop with the people leaving.
Those who remain are often affected too.
We frequently see increased stress, uncertainty, reduced morale, heavier workloads, and concerns about organisational stability. Some employees experience what is often referred to as "survivor guilt", relief that they still have a role mixed with discomfort about colleagues who do not.
How organisations manage these moments matters
Most organisations are familiar with their obligations under workplace legislation, including consultation requirements, notice periods, and redundancy pay. These are essential foundations.
But increasingly, organisations are also being called to consider psychological safety during periods of organisational change.
In New South Wales, psychosocial risks such as poor communication, job insecurity, organisational change, and inadequate support are recognised workplace risks that can negatively affect mental health.
This raises an important question: Not only "Are we legally compliant?" but also "Are we handling this well?"
In our experience, several things can make a meaningful difference during periods of redundancy or workforce change:
Clear, timely, and respectful communication
Managers who are supported to have difficult conversations with empathy and professionalism
Access to psychological support for affected employees
Career transition or practical support where possible
Attention to the wellbeing of remaining teams
Visible leadership that communicates honestly and consistently
Employees often remember how they were treated during difficult periods long after the economic circumstances have changed.
While redundancy may sometimes be unavoidable, organisations still have choices about how people experience the process.
Handled poorly, redundancy can damage trust, morale, culture, and psychological wellbeing.
Handled thoughtfully, with dignity, transparency, and care, organisations can reduce harm and demonstrate ethical leadership during difficult times.
At Life Matters, we are increasingly supporting organisations and employees through periods of workplace uncertainty and transition.
This may include Employee Assistance Programs (EAP), short-term psychological support for affected employees, leadership support, and post-redundancy psychological care for individuals and teams navigating change.
If your organisation is facing difficult workforce decisions and would value support, we are always open to a conversation.
References
Fair Work Act 2009 (Cth)
Work Health and Safety Act 2011 (NSW)
Safe Work Australia: Managing Psychosocial Hazards at Work
SafeWork NSW: Managing Psychosocial Hazards in the Workplace
Life Matters Disclaimer
All content in our article is published for informational purposes only. It is not intended to be a substitute for professional psychological advice and should not be relied on as personal advice. Always seek the guidance of a qualified psychologist with any questions you may have regarding your mental health.
