Although it’s often described as a worst-case scenario, there are many businesses who will need to let some or all of their staff go in order to survive.
Despite the unprecedented circumstances, the costs arising and the regulations to adhere to when making redundancies have not changed.
There are also further implications to be considered if making staff redundant who were or are on furlough. In drafting this, we checked our thoughts and research with both ACAS and HMRC and in classic style neither would confirm 100% the legal position. ACAS told us to speak to HMRC. HMRC told us to speak to ACAS!
How can businesses steer a path through the madness if the main regulatory bodies won’t give us clear guidance? Here is our attempt to carve out some reasonable advice for you based on our research and conversations with various solicitors and HR professionals.
How much will redundancy cost?
It sounds like making redundancies will help save a business because it reduces the cost base for the business going forward. It can, however, have some significantly high costs up front.
Essentially the older and longer serving an employee is, the more expensive it will be to make them redundant.
This is often part of the reason why businesses operate a last in, first out policy. Added to the fact than generally newer staff are less productive then staff who have been in the business for years. However, you would need to provide a clear fair and objective election process as to how and why you have retained certain employees, as otherwise an unfair dismissal case could be bought against you.
Staff who have been with a business also tend to have higher salaries than a more junior employee, making their cost for redundancy higher still.
The elements to calculating redundancy cost are:
- Statutory/Contractual Notice Period
- Statutory/Contractual Redundancy payment
You would need to check your employment contracts to determine what has been included under these terms and conditions. Most would refer to the statutory requirements, which is the minimum by law that you would need to pay.
To calculate the statutory requirements, we have a tool you can download and use. Fill in the short form here to download it.
As an employer you can continue to pay the colleague during their required notice period, following the correct consultation periods, or you can pay in lieu of notice, depending on your circumstances.
‘Payment in lieu of notice’ is where employment can be ended, and you pay up the notice, rather than letting the employee continue to work, but it should be a clause included in the employment contracts. It can still be given if the contract does not mention it, as long as both parties agree.
All notice pay would be put through the employee’s wages, along with any accrued holiday or time in lieu and the relevant Tax and National Insurance deductions will be made.
Redundancy payment is based on age and years of service, but an employee would require two years’ service or more to qualify.
An employee would receive:
- Half a week’s pay for each full year they were under 22
- One week’s pay for each full year they were 22 or older, but under 41
- One and a half week’s pay for each full year they were 41 or older
Length of service is capped at 20 years.
Redundancy pay under £30,000 is not taxable
How does furlough affect these calculations?
Unfortunately, a lot of redundancies will occur across the wider economy, following on from the closure of the Job Retention Scheme. This is where the considerations, and I would expect risks, will be taken by employers in regard to the calculations of pay for their employees because there is no clear legislation to follow.
Generally, it is the opinion of legal advisers that serving notice of redundancy to a staff member while they are on furlough, will cause the employer to need to top up the rate of pay to 100% during the notice period. This is based on the notion that an employee would be entitled to their contractual rate of pay, as they could argue that the compromise to 80% was to retain their job, it was not an agreement to accept 80% of the notice that they would need to be paid if they were to be dismissed.
In reality, it is a question of your attitude to risk as an employer.
Without clear guidance this point is open to interpretation. If as an employer, you do not want or are unable to pay the 20% top up of the furlough pay then it is potentially arguable that this was a correct course of action. The risk is that under tribunal it could be retrospectively argued that you should have made the top up. At that point the cost would then be payable as settlement. Our advice would, of course, err on the side of caution and say paying the topped-up amount is the correct way to proceed, if you can, because under tribunal the needs of the employee tends to be viewed more favourably.
You would also need to bear in mind any employees on variable hours. If you are calculating their redundancy or notice pay, then it would need to be calculated on the previous 12 weeks of work completed and not include any furlough payments. Therefore, if an employee was furloughed in March, then you would need to include the hours/pay worked in December, January and February as a minimum of 12 weeks.
We can help you
Ultimately making staff redundant is going to be a cost to your business, whether they are furloughed or not.
The furlough arrangements will only last until October and from August are likely to have an increased cost to you as an employer. The process for making redundancies can take time when you consider the consultation period and notice period. To mitigate the costs to your business it is advisable to assess these costs and time scales as early as possible.
It is important to remember that employment legislation has not changed during this unprecedented time. Employers will still be required to follow the correct procedures, including consultations and providing the correct timescales in between each meeting, before finally dismissing an employee.
We have, sadly, helped a number of clients over the recent weeks and months with these issues, including businesses that unfortunately are shutting down. If you require further details on the redundancy process including how to conduct a consultation, understanding the correct timescales for redundancy or what information is required in the follow up letters please contact Donna Bygrave, Training and Personnel Manager at firstname.lastname@example.org
Contact me today | Donna Bygrave | 01474 853856