Redundancy- An Essential Guide for Employers
In my experience of advising businesses I can safely say that redundancy is one of the most commonly misunderstood areas of employment law.
There’s a lot to this subject so this article will serve as a basic introduction, dispelling some commonly held myths along the way.
What is redundancy?
Redundancy is a dismissal due to a reduction or complete cessation of work.
Redundancy can affect one role or several roles depending on the circumstances facing the company.
Who is entitled to redundancy pay and how is it calculated?
Statutory redundancy pay (i.e., the minimum redundancy pay entitlement required by law) is only payable to those who have worked for you for 2 years or more.
Redundancy pay is based on age and complete years’ service (capped at 20 years’ service):
- half a week’s pay* for each full year worked under age 22
- one week’s pay* for each full year worked age 22 and over
- one and half week’s pay* for each full year worked aged 41 and over
* The current rate of statutory redundancy pay is capped at £508 per week. Redundancy payments up to £30,000.00 are tax free.
- Your employee has worked for you for 7 years, is aged 53 and earns £600 per week will get 10.5 weeks redundancy pay = £3,150.00
- Your employee has worked for you for 3 years, is aged 24 and earns £450 per week will get 2.5 weeks redundancy pay = £1,125.00
What about notice?
Many employers when calculating redundancy and notice pay fail to consider statutory notice. Notice pay will be due to an employee who is made redundant, how much they are owed will depend on their contract or their statutory notice entitlement- whichever is greater.
Legally an employee is entitled to one weeks pay for each complete year of service up to a maximum of 12 years.
Notice pay is not affected by age and is not capped- it is taxable.
Unsure of your notice obligations? Have the start date and contract details of your employee at the ready and contact our experts.
What about holiday pay?
Any holiday accrued and not taken is also payable to an employee who is made redundant.
What are the first steps?
Only when you have a solid business reason for contemplating redundancies are you ready to begin.
Redundancy should be a last resort. If the reason is financial make sure that you have considered all other means of cutting costs before resorting to redundancy:
- Have you considered if lay off or short time working is more appropriate? View our article here www.hr-24.co.uk/articles/managing-a-temporary-shortage-of-work/
- Do any of your staff wish to voluntarily reduce their hours?
If you are looking at a restructure to make the organisation run more efficiently and costs are not necessarily the driving factor, you may have identified a role/s which are no longer required, consider:
- If any of the role is remaining, where will it be going? If an existing employee is to absorb this work can it be done without placing extra strain on them?
- Can the employee at risk of redundancy do the role on a reduced part time/job share basis?
Having a sound business case ensures the focus stays on the business reasons for redundancy and doesn’t stray into the danger zone of WHO is to be made redundant rather than which ROLE.
Please avoid orchestrating a redundancy situation to remove a poor performing or ‘troublesome’ employee. That is not a true redundancy and it exposes you to a potentially costly unfair dismissal or even discrimination claim!
Why- surely if faced with having to make redundancies I should be able to retain my best staff?
Of course. Skills and qualifications can be used, together with other criteria such as disciplinary records and length of service when you have a pool of employees whom you have identified as being at risk of redundancy.
When looking at selection criteria, avoid creating a selection criteria that is engineered to select a certain person to go and instead use it as a means of selecting who should stay.
Selection criteria should be objective where at all possible. Avoid criteria such as ‘commitment’, ‘team player’, ‘enthusiastic’, ‘flexible’- these types of criteria are not measurable and are often open to accusations of bias.
REMEMBER- a poor performing employee should be managed via a capability process and our experts are on hand to advise you on how to handle this.
Do I have to consult?
Consultation is required prior to making an employee redundant.
This process involves making sure the employee/s know why there are redundancies being contemplated, they are given an opportunity to make suggestions to avoid redundancies and if selection criteria are being used, they know what criteria and how that criteria will be used. It is also an opportunity to ensure any alternative employment options are considered.
How long does it take?
For redundancies on a large scale there are consultation periods set out in law, and where there is trade union recognition certain steps need to be taken.
However, for redundancies involving fewer than 20 redundancies the consultation process needs to be meaningful. As a very general guide I would estimate around 2/3 weeks involving 2-4 consultation meetings.
Remember – the consultation period is not part of the employee’s notice period. Notice only commences when written notice of redundancy has been issued at the end of the consultation period.
It’s vital that advice is sought prior to and throughout a redundancy process. Our experts can give you bespoke advice at every stage to make sure you avoid costly tribunal claims.