Updated: 26th January 2021
Redundancies happen for different reasons, but often its because the business is struggling financially and needs to cut costs or is closing down. Making any member of staff redundant is not an easy decision to make and as an employer there is a formal process that you must follow.
Government guidelines recommend you look at ways to avoid redundancies in the first instance, such as moving staff to other areas of the business or offering reduced working hours. Some staff may jump at the chance to work part-time.
However, if redundancies are inevitable, then first offer voluntary redundancy, which may make the painful task of choosing who to make redundant a lot easier. When choosing staff for redundancy you must choose fairly and be able to justify your reasons to avoid discrimination.
Providing your employees have been with you for at least 2 years, they’ll normally be entitled to statutory redundancy pay. The amount they’ll receive depends on their age and length of service so take a look at www.gov.uk/calculate-your-redundancy-pay for more details. Statutory redundancy pay is tax free up to £30,000.
By law, your employees must receive notice of being made redundant. The statutory minimum periods range from between one and 12 weeks, depending on length of service. Staff should still be paid throughout their notice period. However, if the situation with your company gets worse very quickly and you can’t give your employees their full notice, they’re entitled to receive a notice period payment in lieu, including payment for holidays not taken, pension contributions etc.
If your company then goes into liquidation or administration and you’re not able to pay your staff, they can claim for money owed to them through the Redundancy Payments Office. Your employees can claim for up to eight weeks of any unpaid wages, up to six weeks holiday pay for days not taken, compensation in lieu of receiving statutory notice, plus redundancy pay. The insolvency practitioner handling the liquidation will be able to advise your employees on how to claim.
Employees have the right to a consultation about their redundancy, which gives them a chance to ask questions and understand the situation better. You can do this on a one-to-one basis if you have less than 20 employees that you’re making redundant, but if it’s more than 20 people then you’ll need to hold a collective consultation.
If your business is viable long-term, then you must try to find an alternative role in the company for any employees being made redundant. Employees can have a trial period of 4 weeks to see if they’re happy with the new role. If they’re not happy, they can still receive redundancy pay, but they must give notice within that 4 weeks. If they refuse the role without good reason they may not be entitled to statutory redundancy pay.
Finally, employees are entitled to take a reasonable amount of time off during their notice period to look for work or attend interviews, but you may still have to pay them up to 40% of their wage (see https://www.gov.uk/staff-redundant for full details).
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