Do you need to make a member(s) of your staff redundant?
When facing business debt problems, one of the key decisions to make as owner or directors is this: do some roles need to be made redundant to save costs. Is the business going to be smaller if you use a CVA, or sell it through administration for example.
Here are some key things to take into consideration. If you fail to act appropriately and correctly redundant employees can make a claim against your company. You could also face tribunals and fines for not acting correctly.
If you don’t think your company can afford to make redundancies then read this page for information on how you can do it at NIL COST
What is redundancy?
Redundancy is the act of an employee losing their job as the job or role they perform is no longer needed.
So, when is redundancy necessary?
Cost cutting reasons
- For example resizing the company, closing certain departments or branches, perhaps due to an insolvency event such as administration or a company voluntary arrangement.
- When there is no longer a need for the full time role In this case where a full time role may no longer be available but there may be a new part time role, then the employer must offer the part-time position to the current full-timer.
If the employee refuses, usually because the part-time position is not as convenient or suitable as an alternative, then the employee must be paid redundancy pay.
- Full business closure, either temporary (COVID-19, refurbishment) or permanent
So, remember, it is vital to only proceed with redundancy when appropriate as it will impact the employees and your business significantly.
A number of alternatives can always be looked into, if trying to cut costs; reducing overtime, freezing any increases to salary/wages, putting a halt on any further recruitment, terminating contracts of temporary or agency staff.
When redundancies are compulsory, for example, when employees need to be let go to save business costs and avoid insolvency there are certain criteria you can use to ensure the staff you choose to make redundant is fair.
- Standards of work produced
- Attendance and disciplinary records
- Length of employment/service (it is important to avoid age discrimination here)
- Skills, experience and appraisal data (be careful to avoid sex/disability discrimination)
Some employees may self-select and volunteer to be made redundant (usually if they are close to retirement age anyway and their redundancy pay will be worthwhile). Be sure to use previously agreed redundancy procedures made with unions if applicable too.
It is vital for you as an employer to…
- Keep the employee informed with what is happening.
- Consult the employee and give an honest explanation as to why they have been selected to be made redundant. There is a period of consultation based on the amount of employees being made redundant.
For between 20 and 99 employees being made redundant at once, there is a minimum obligation of 30 days and no less, to consult with employees. For 100 or more this period extends to 90 days and for any less, no set amount is required.
Look into all other options and discuss this with the employee; are there any alternative employment positions you can offer? Can they be transferred to a different department of the company? Or a different branch? Alternative employment positions must be of a similar nature.
The three key aspects of making an employee redundant are;
- offer alternatives.
What rights do redundant employees have?
When dismissed due to redundancy, employees are entitled redundancy pay, provide the following conditions apply:
- they are a actual employee of the company, not a subcontractor
- they have had at least two years of continuous service
- they have been dismissed for redundancy purposes only.
The sum of redundancy pay they will receive depends on their age at dismissal, weekly gross salary and length of service completed. Please note the Government caps the amount at £643 a week, with the maximum statutory redundancy pay at c.£17000.
Do also check the employment contract for the employee as they may have alternative conditions. For example, one month’s pay per year of service. If this is the case, the contract entitlement would be followed instead. In any situation, the highest amount is always paid, be it the contractual or statutory amount.
Before a staff member can be made redundant, their notice period must be served and this must usually be paid for. You can have more than the statutory minimum, so long it is agreed, but not less. Currently the notice periods are, at least one weeks’ notice if employed between one month and 2 years, one weeks’ notice for each year if employed between 2 and 12 years and 12 weeks’ notice if employed for 12 years+. Be aware that in some situations the employee can be paid in lieu instead, depending on their employment contract entitlements. When employees serve their notice period, allow them paid time off to look for alternative employment.
Any accrued, untaken holiday pay will need to be paid for. This is capped at £643 a week and at a maximum of six weeks. Although redundancy payments are tax-free up to £30,000, for holiday pay, both income tax and national insurance are applicable.
More about employee rights when being made redundant can be found here.
If your business or company cannot afford to make redundancies then your business or company is in effect insolvent. As such, you will need to act and take advice from specialist advisors such as KSA Group the owners of this webpage, who are licensed insolvency practitioners.
If the business could be viable after costs such employee roles can be made or other costs can be cut, then a company voluntary arrangement might be the best way to rescue the situation. Any redundancy pay or lieu of notice post an insolvency event may be paid though the RPO
Redundancy Payments Service
Telephone: 0330 331 0020
Monday to Thursday, 9am to 5pm
Friday, 9am to 3pm
See the video below for more information