Redundancy- An Essential Guide for Employers

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In my experience as an employment law specialist advising businesses, I can safely say that redundancy law 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 to the redundancy process, dispelling some commonly held myths along the way while providing highly informative redundancy guidance for employers.

What is redundancy?

Redundancy is a dismissal due to a reduction or complete cessation of work. Redundancy can affect individual employees or even a large number of employees 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 redundancy pay* for each full year worked under the age of 22
  • one week’s redundancy pay* for each full year worked to age 22 and over
  • one and half week’s redundancy 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.

Example:

  1. 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
  2. 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 pay for redundancy?

Many employers when calculating redundancy and notice pay fail to consider the statutory notice period. 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 week’s 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 for the best possible redundancy advice for employers

What about redundancy and holiday pay?

Redundancy law for employers stipulates any holiday accrued and not taken is also payable to an employee who is made redundant.

What are the first steps of starting a redundancy process?

Only when you have a solid business reason for contemplating redundancies are you ready to begin the redundancy process.

Making someone redundant 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 laying off or short-time work is more appropriate?
  • 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 roles are remaining, where will they 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 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 and offer the best redundancy help for employers

Do I have to conduct a redundancy consultation?

Redundancy consultation is required prior to making an employee(s) redundant.

This redundancy consultation 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 criterion will be used. These redundancy consultation meetings are also an opportunity to ensure any alternative employment options are considered.

Redundancy Employee Consultation Process

One of the most significant obligations of employers during a          redundancy process is keeping employees updated on what is happening during a redundancy consultation meeting. However, a 140% increase in redundancy claims to Employment Tribunal shows that employers are getting the employee consultation process wrong.

Redundancy Information and consultation

The Trade Union and Labour Relations (Consolidation) Act 1992 imposes requirements on employers to keep employees ‘informed and consulted’ using a redundancy consultation process during a large redundancy process. A large redundancy process is classed, for these redundancy consultation processes, as one in which 20 or more redundancies are proposed at one establishment within a period of 90 days or less. It is not necessary that 20 people are made redundant to meet this definition, just that 20 or more are proposed.

Rules on Redundancy Consultation

  • Who is involved? Unless employee representatives already exist in the organisation, employers have to arrange for an election through which a number of employees are elected to take part in the redundancy consultation on behalf of the rest of the employees. This means the selected employee representatives need to attend meetings with the employer to be kept abreast of developments and to convey any ideas, suggestions or opinions from the employee they represent. Where a trade union agreement exists with the employer, the union must be involved in the redundancy consultation.
  • How long must consultation last? Where between 20 and 99 redundancies are proposed, the minimum period that consultation should last is 30 days. Where 100 or more are proposed, the minimum period is 45 days.
  • What topics should be discussed? The point of redundancy consultation is for employers to reach an agreement with employees on important issues, including ways of avoiding all redundancies, for example, laying off or short-time working, temporary pay cuts, a cut on overtime hours etc. Topics such as selection criteria, in situations where it is proposed to make some but not all employees redundant, should also be discussed.

In addition, certain pieces of information must be provided in writing, including the reasons for the redundancies and the numbers and descriptions of employees affected.

If the obligations in the Act aren’t complied with, the Employment Tribunal can make a ‘protective’ award of up to 90 days’ pay per employee.

Remember if you need advice on redundancy consultation to contact the experts at Avensure for the best redundancy support for employers available in the UK.

How do smaller-scale redundancies work?

There are no statutory rules for consultation in a redundancy exercise involving fewer than 20 proposed redundancies. However, it is still an essential element of the redundancy process and should contain the same topics of discussion and agreement. There are no minimum time periods for consultation but a good process would involve a series of meetings, usually no less than three over a time period of a few weeks.

Consultation is integral to achieving a fair dismissal and so failure to undertake a good consultation process can result in an unfair dismissal and a compensatory award at Employment Tribunal. This will apply even if there is no alternative to redundancy e.g. if the job loss is inevitable because the organisation is closing down.

How long does the whole redundancy process take?

For redundancies on a large scale, there are consultation periods set out in the law, and where there is trade union recognition certain steps need to be taken and we always recommend you seek professional redundancy legal advice.

However, for redundancies involving fewer than 20 redundancies, the redundancy consultation process needs to be meaningful.  As a very general guide, I would estimate around 2/3 weeks involving 2-4 redundancy consultation meetings.

Remember – the consultation period is not part of the employee’s notice period. Notice only commences when written notice of redundancy process 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 redundancy law experts can give you bespoke advice at every stage of the redundancy process to make sure you avoid costly tribunal claims.

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