It is important to be well-versed on the topic of redundancy to ensure that it is the best course of action and is carried out correctly.
In response to the hit that businesses across the country took with the implementation of lockdowns to control the COVID-19 pandemic, a furlough programme was set in motion to support employers and their workers, funding companies to continue paying 80% of their employees’ wages in an attempt to minimise the amount of workers who would have to be laid off. However, since July, the support provided by the furlough scheme has been steadily dwindling, in preparation for it to be cut off entirely by the end of this month (read also: The End of Furlough: Everything You Need to Know). This furlough programme, officially named the Coronavirus Job Retention Scheme, provided a much-needed lifeline for many business owners to keep covering the cost of their workers’ salaries, with an estimated three in 10 employers still furloughing staff. As such, with the furlough scheme petering out, many firms may now be faced with the prospect of making employees redundant to cut costs. Although a difficult decision, it is important to be well-versed on the topic of redundancy to ensure that it is the best course of action for your business and that it is carried out correctly.
When to consider making workers redundant:
- Cutting costs – Whether as a result of the termination of the government’s furlough programme or due to other unforeseen and costly changes to your business, such as entering into an insolvency process like a Company Voluntary Arrangement, making workers redundant may be necessary when your company is faced with financial pressure. Other options are available, however, such as putting a stop to the recruitment of other employers, freezing pay rises or reducing overtime.
- Certain jobs are no longer needed – Redundancy may also be necessary if you find that certain roles within your business are no longer needed, something that may occur when resizing your company or shutting down particular departments within it.
- Business closure – Redundancy could come as a result of both permanent or temporary business closure. Many business have been faced with temporary closure as a result of the COVID-19 pandemic and lockdowns, but ceasing a company’s operations for a short-term period could be necessary under other circumstances, such as refurbishment or unexpected emergencies, in which making workers redundant may be necessary due to the loss of business when the company is out of operation.
What should be considered when selecting someone for redundancy:
When redundancies are absolutely necessary, such as to avoid your business becoming insolvent, then as an employer, you have a responsibility to ensure that the process for selecting workers for redundancy is fair and carefully considered. The government outlines four main criteria for this selection process:
- Skills, qualifications and aptitude
- Standard of work and/or performance
- Attendance
- Disciplinary record
One other criterion can be considered, that being the length of time the employee has been with the business, although this requires ample justification to avoid accusations of potential discrimination if this could affect one demographic more than another, such as different age groups.
The rights your redundant employees have:
- Redundancy pay – If the person made redundant is an employee of the company and has been working under their current employer for at least two years, they are entitled to redundancy pay depending on their age, length of service and average weekly pay for the 12 weeks prior to their redundancy notice. In the case of an employee who was on reduced pay due to furlough, a week’s pay would be based on what they would have earned under normal circumstances. Weekly pay is capped at £544 and the maximum statutory redundancy pay is capped at £16,320.
- Notice period – An employee must be given a notice period before they are made redundant, the length of which is determined by how long the employee has worked under their current employer. They will continue to be paid during this time based on their average pay over the past 12 weeks. Depending on an employee’s contract entitlements, they may be paid in lieu of notice, which could include additional pay in the form of things like pension contributions or private health care insurance.
- Consultation – Employees are entitled to consultation with their employer when being made redundant, in which they can talk to you about why they are being made redundant and any possible alternatives to redundancy. When 20 or more employees are being made redundant at a time, this consultation should take place between you and a representative, either in the form of a trade union representative or an elected employee representative. Moreover, you are required by law to notify the Insolvency Service’s Redundancy Payment Service with an HR1 form when making 20 or more employees redundant at once, and failing to do so without appropriate cause could result in a prosecution or fine.
- Suitable alternative employment – An employer can offer an employee being made redundant what’s known as ‘suitable alternative employment’, either as a different role within your business or a job with an associated company. Whether another job is considered suitable alternative employment depends on how similar the work is to the employee’s current job in terms of pay, hours, location and required skills.
Expert Business Recovery Advice from Voscap
If you need further advice on making redundancies or other ways to get your business on the path to recovery, contact Voscap today at 020 7769 6831 or email team@voscap.co.uk to speak to one of our business recovery specialists.
