Covering the cost of making staff Redundant

Since its introduction in March 2020, the Coronavirus Job Retention Scheme (CJRS) has been used by approximately two thirds of businesses.  A series of extensions means this scheme will now run until the end of April 2021.

The scheme allows employers to ‘furlough’ staff whose jobs would otherwise have been at risk, and the government will cover 80% of their monthly salary up to a limit of £2,500.  With the scheme now due to end, businesses using the scheme may need to consider whether any redundancies are likely to be made. 

If your business has been severely affected by Coronavirus then this could lead to acute cash flow problems, and difficulty in paying staff wages.

Employers Obligations

Employees who meet the qualifying criteria for redundancy under the Employment Rights Act 1996 are entitled to receive statutory redundancy payments.  You are required by law to consult with your employees about potential redundancies and must provide advanced notification to the government of any proposal to dismiss 20 or more employees.

If your company cannot afford to fund the redundancy payments, it is possible to apply to the Insolvency Service for financial assistance. If approved, the Redundancy Payments Service (RPS) will make payments direct to the employees and then seek to recover the monies advanced from your company. If your company does not reimburse the RPS, enforcement action will be taken.

If your company is insolvent, the RPS will pay claims direct to the redundant employee, up to certain limits, and will then take the employees place as a creditor in the insolvency.

What can be claimed?

Redundancy Pay

An employee is usually entitled to statutory redundancy pay if they have been continuously employed for two years or more.  Statutory redundancy pay is calculated as:

• Half a week’s pay for each full year you were under 22;
• One week’s pay for each full year you were 22 or older, but under 41;
• One and a half week’s pay for each full year you were 41 or older.

Length of service is limited to 20 years and the maximum amount per week is £538. Your likely redundancy entitlement can be calculated here.

Payment in Lieu of Notice

You must give employees’ adequate notice before their employment ends:

• at least one week’s notice if employed between one month and 2 years;
• one week’s notice for each year if employed between 2 and 12 years;
• 12 weeks’ notice if employed for 12 years or more.

All employees should receive their basic pay (which would have been paid during the notice period) and could claim additional entitlements if their contract provides for them.

Unpaid Wages and Accrued Holiday Pay

Employees are entitled to receive unpaid wages and accrued holiday pay, and other monies owed by the employer – such as a contractual bonus, overtime or commissions.  Arrears of wages are limited to 8 weeks, capped at £538 per week. 

Claims submitted for holiday entitlement which has been accrued but not taken (or holidays taken but not paid) are limited to 6 weeks, capped at the same level.

What to do if you are worried about making staff redundant?

If you are worried your company will struggle to survive once the furlough scheme comes to an end, it is important that you seek expert advice from a licensed insolvency practitioner.  At Keywood Group we understand how stressful it is to consider making changes to your team and we offer practical, transparent advice.

Contact us for a no obligation chat about options available.