Redundancy: From An Employers Point Of View

Let’s look at redundancies from an employers point of view.

If you’re in the awful position of having to make redundancies of some of your furloughed staff, then you’ll have to properly calculate their payments.

In this blog we want to outline the key things you’ll need to know.

The Difference Between Redundancy & Termination

Redundancy can happen for multiple reasons, but the dismissal has to fall under one of these 3 headings:

  1. A dismissal because the business is closing.
  2. Dismissal due to the workplace closing.
  3. A dismissal due to particular work stopping, reducing or the expectation that this might happen in the near future.

Redundancy is essentially a ’cause’ and ‘effect’ scenario. Something has caused the business to close, or for work to be reduced, therefore staff need to be made redundant (they are not needed anymore).

This is a helpful definition, and must not be confused with simply ‘not being happy’ with the way an employee works or conducts themselves. This would be deciding to terminate an employee based on performance.

Statutory Redundancy Pay

Every employee is entitled to statutory redundancy pay, providing they have been under contract for 2 years from the date that:

  • the notice of redundancy expires from either the employer, or employee.
  • termination takes effect (including the statutory minimum notice).

If they qualify for statutory redundancy pay with the criteria outlined above, they also have the right for a fair dismissal due to the legislation in place.

Rules When Making Someone Redundant

This is one of the most important aspects to adhere to as a business owner.

So, here are some of the rules to ensure that any redundancies you make are handled fairly:

  • Consult your employees if there are 20 or more being dismissed.(This must be done with 90 days, unless this is not ‘reasonably practical’. Furlough & COVID-19 are not good enough reasons for not having these consultations.)
  • These consultations will be general, and must have elected representatives and allow for proposals against redundancy.(This ensures that all options have been considered. This must be done for each individual employee.)
  • The government must be informed about the redundancy plans.(You can do this by using a HR1 form.)

Calculating Statutory Redundancy Pay

The next step is determining how much Statutory Redundancy Pay an employee is entitled to.

Here’s a couple of questions you’ll need to be able to answer when calculating the correct amount:

Q1: How Many Years Of Continuous Employment Has The Employee Completed?

This will be determined using their ‘date of entitlement’ (which you used to work out their eligibility).

Q2. How Much Is The Employees Weekly Pay?

Check the payroll for their weekly pay. Once you’ve done this, the employee will be due:

  • 1 & 1/2 weeks pay for each year that they were employed from the age of 41 and above.
  • They will then be due 1 weeks pay for each year of their employment from the age of 22-40.
  • Finally, they will be due 1/2 weeks pay for each year of their employment up to the age of 21.

The final figure will be the Statutory Redundancy Pay an employee is due.

Caps On Redundancy Pay

Statutory redundancy pay is capped at 20 years of service, and £538 weekly pay in Great Britain from 6th April 2020 (or £560 in Northern Ireland).

You can choose to pay more than the statutory rate, but you should make sure your policies are up to date.

However, there are no circumstances where you are allowed to pay less than the statutory amount.

You can calculate redundancy pay on the government website here.

Selecting Furloughed Workers For Redundancy

Before you make anyone redundant, you will need to choose a ‘pool’ of employees that will be placed at risk of redundancy.

Not all of these employees will be made redundant, but you can now follow the rules above, and carry out your fair process.

This will determine who will be dismissed from the pool of employees at risk.

Furlough does not help to determine whether an employee is selected to be put at risk of redundancy. It does not add, or take away from the selection process.

Those who have never been furloughed should not be treated any differently.

New Furlough Redundancy Rules

In fact, new legislation was recently passed to ensure that furloughed workers are not at a disadvantage in the redundancy process.

These new rules state that:

  • an employees length of service continues, even through the time that they were on furlough.
  • Their normal weekly pay must be taken into account, rather than their reduced furlough pay.

As mentioned above, any furloughed worker should also be offered a redundancy consultation. Furlough is never an excuse to not have a consultation with an employee, as the process isn’t required to be face to face.

Remember, if you can keep furloughed employees on your payroll until the end of January 2021, then you will likely be eligible for the Job Retention Bonus.

This bonus gives employers £1,000 for every employee they retained from furlough.

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