Making Redundancies – What directors need to know

The Coronavirus Job Retention Scheme (CJRS) ended recently, in September.  The scheme was largely successful in preventing a wave of redundancies as a result of Covid-19.  However, since the scheme ended many businesses which used it have been forced to consider whether redundancies will be now necessary.

Making redundancies can be very distressing and before starting the redundancy process, you should consider whether redundancies can be avoided?

Avoiding redundancies

In the first instance, you should take practical steps to avoid compulsory redundancies, for example, by:

• Enforcing a ban on further recruitment, unless absolutely necessary;
• Enforcing a ban overtime, bonuses or commissions unless contractually obliged;
• Seeking applicants for voluntary redundancy;
• Seeking applicants for early retirement.

You may be able to lay off an employee (which means asking the employee to stay at home or take unpaid leave) if you temporarily cannot offer them paid work, but only if this is agreed with staff first. 

Agreement may be contained within their contract of employment, a national agreement for the industry, or a collective agreement with a recognised trade union.  Be aware that national and collective agreements can only be enforced if also part of the individual employee’s employment contract.  If you have any doubt, take advice from your HR provider, or a suitably qualified employment solicitor.

Starting the Redundancy Process

Redundancy is appropriate where the role itself is no longer needed and will be applicable if a business is closing down.  You must follow a fair redundancy process and this must include collectively consulting your staff if more than 20 are at risk of redundancy.

As soon as possible, you should communicate with the employees.  Ideally, you should hold a meeting (remotely if necessary) with all affected employees to explain why redundancies are necessary, and outline what will happen next.

How will the cost of redundancies be met?

Employees who meet the qualifying criteria for redundancy under the Employment Rights Act 1996 are entitled to receive statutory redundancy payments.  Where a company is insolvent, the Redundancy Payments Service (RPS) will pay claims direct to the redundant employees, up to certain limits, and will then take the employees place as a creditor in the insolvency.

This means that your employees receive their statutory entitlements as quickly as possible, even if the company does not have sufficient funds to meet the cost.  The various payments which an employee can submit a claim for, are:

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 £544. Your likely redundancy entitlement can be calculated here.

Payment in Lieu of Notice

An employer must give 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.

Unpaid Wages and Accrued Holiday Pay

Employees are entitled to receive unpaid wages and accrued holiday pay.  Arrears of wages are limited to 8 weeks, at £544 per week.  New regulations, The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020, provide furloughed employees whose employment is terminated with added protection, by requiring that the calculation of their statutory entitlements is based on their normal pay rather than on their furloughed pay.

How we can help

At Keywood Group we understand how stressful it is when your business is facing financial difficulty, particularly when redundancies need to be made.  We offer practical, transparent advice and can arrange a same-day consultation in Birmingham, London or nationwide. Please contact us for a no obligation chat about options available.