Since the early weeks of the coronavirus lockdown, many employers have been aware of the likelihood they will need to make people redundant. This week’s Blog addresses the key issues employers are going to have to consider.
A YouGov poll of employers on 1st June, around 25% of them said it was likely that they would have to shed staff because of the knock-on effects of the coronavirus pandemic. With redundancies now inevitable, just watch the news for the latest announcement of job cuts, how businesses deal with the situation will have a considerable impact on their reputation, retention and motivation of remaining employees, not to mention the future success of the company.
The Coronavirus Job Retention scheme (CJRS) was explicitly designed to prevent mass lay-offs and has been intertwined with redundancy issues ever since. With the flexible, second phase of the furlough scheme coming to an end on 31st October, employers facing the reality of having to let people go, have to confront when and how they are going to do it.
Employment law requires a consultation period before an employee can be made redundant. This consultation period ranges from 10 to 20 days for small businesses laying off fewer than 20 employees. However, they will still need to consult the affected employees to ensure the process is fair.
For companies making 20+ people redundant the statutory provisions kick in and a minimum of 30 days is required for a consultation exercise to be undertaken. If the number of redundancies is 100+, up to 90 days is required for consultation. Additionally, any employer making more than 20 people redundant, has to complete a Department of Works and Pensions form to demonstrate that they are undertaking a consultation exercise, during which they must allow employees to put forward a representative to speak on their behalf. If they are in a union, the union must be involved, or the process will be deemed unfair from the start.
Redundancies when still on furlough
One important issue surrounding redundancy whilst on furlough, was clarified on 17th July when HMRC updated the CJRS guidance notes to clarify the rules on what pay was eligible for a claim under the CJRS scheme. The clarification states that any CJRS claim was still valid for someone who has been served with a redundancy notice, providing that person serves their notice period. Individuals receiving pay in lieu of notice cannot be included in a claim for CJRS.
“Where you must make redundancies, you should do so in accordance with the normal rules. This includes giving a notice period and consulting staff before a final decision is reached. You can continue to claim for a furloughed employee who is serving a statutory notice period, however grants cannot be used to substitute redundancy payments,” the guidance states.
Redundancy & Furlough: Further clarification
The guidance also clarified two other key issues regarding redundancy:
- When an employer is working out a ‘week’s pay’ they must use the pre-Covid pay and not what they’re paying an individual who is on furlough if that is lower
- Suppose an employee is on furlough, and they are currently receiving 80% of their wage under phase 2 of CJRS. In that case, employers may need to ‘top-up’ to 100% during any notice period to avoid claims for unlawful deduction of wages and breach of contract from employees.
This top-up could well mean that severance costs will be higher as a result, so employers should ask employees to use up any accrued but untaken holiday during their notice period
5 Key issues employers must consider when making redundancies
HMRC’s guidance is reasonably robust, and as long as it is applied with some commonsense, you should be able to steer away from glaring errors. So, what are the five issues employers should ask themselves about their redundancy plans:
- Is this the most legally straightforward way to dismiss employees. Statutory rules kick in on redundancy payments and trying to go through a formal consultation process in the middle of a pandemic will complicate the process
- One key condition the lay-offs need to fulfil is the existence of a “genuine redundancy” situation. This should be a relatively straightforward exercise in the current situation
- The fairness of the process is critical. Fair and objective selection criteria should be applied, based on things such as length of service; disciplinary history; performance, skills, qualifications, experience and appraisals.
- An employee’s age, sex or race are NOT suitable criteria and could be considered as discriminatory factors by an employment tribunal, resulting in higher penalties. Nor should absence for family or disability-related reasons, trade union activity or whistleblowing come into consideration
- As part of the consultation process, the employer must consider any alternatives to compulsory redundancy, such as early retirement, alternative jobs within the business, reduced hours or more flexible working patterns.
And do not forget, employers are under a legal obligation to consider these alternatives for employees with more than two years’ service.
What payments is an redundent employee entitled to:
Statutory redundancy pay is based on earnings before tax gross pay) and is the legal minimum you’re entitled to. For each full year worked for the employer, you get:
- age 18 to 22 – half a week’s pay
- age 22 to 40 – 1 week’s pay age
- 41 and older – 1.5 weeks’ pay
Also, it’s worth remembering that you won’t pay any tax on your statutory redundancy pay, but the maximum weekly amount you can get is £538 – even if you earn more. Additionally, you can only get redundancy pay for a maximum of 20 years’ work, so if you’ve worked at your job for 30 years, you’ll only get redundancy pay for 20 years.
And if your employer goes bust during the redundancy process, do not worry as the Department of Works and Pensions will pick up the tab. You can see check on how much redundancy pay you’d get using the government’s redundancy pay calculator at https://www.gov.uk/calculate-your-redundancy-pay
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.