Redundancy: Putting the process in motion
You've made the choice, so where do you go now?
Being made redundant is tough for anyone but a decent redundancy package may help soften the blow. So what should you offer your employee? “The norm these days is to offer the employee statutory redundancy pay plus notice pay under contract, or allow them to work out their notice. It only tends to be bigger companies that offer enhanced redundancy payments,” explains Phillip Millington of Osborne Clarke.
You are not generally obliged to offer redundancy payments to employees:
- over the retirement age
- under 18 years old
- who have been continuously employed by you for under two years
- that accept alternative employment at your company
Everyone else who has been in continuous service for two years or more may receive redundancy pay.
Statutory redundancy pay is calculated from the employee’s age, years of service and average weekly wage. However, weekly pay is currently limited to a maximum £240 per week, and years of service is up to 20 years. The amount will comprise:
- For each year of service from aged 18 up to (but not inc) aged 22 – weekly pay x 0.5
- For each year of service from aged 22 up to (but not inc) aged 41 – weekly pay
- For each year of service from aged 41 upwards – weekly pay x 1.5
- From aged 64-65, the award is reduced by a twelfth each month up to aged 65, when it is zero.
If you are in dire financial straits, to the extent where making the redundancy payment would put your business at risk, you can ask the Department of Trade and Industry to pay the employee direct from the National Insurance Fund. You’d then be expected to pay back the payment as soon as possible.
“It’s certainly a very useful scheme,” recommends Caroline Elsey of the Institute of Business Advisers. “The redundancy payment can be a horrific figure once it’s totted up – especially for a small business making a redundancy because of cashflow problems.”
If an employee feels that they have been selected unfairly for redundancy, they have can complain to an employment tribunal.
Some employers try to safeguard against a claim when they make a redundancy, explains Millington. “Employers sometimes offer the employee what they are entitled to and a few pounds extra if they agree to sign a compromise agreement. This removes their right to an unfair dismissal claim, but the employee has to obtain legal advice before signing the agreement. You therefore have to be careful that offering this doesn’t alert them to the possibility of a successful claim.”
If a complaint is made, the tribunal will not look into whether it was right to make redundancies, as that is a business decision for the employer. However, it will look into the overall fairness of the selection and whether sufficient consultation has taken place with those selected.
“The maximum compensatory payment for unfair dismissal is £51,700, but in general employment tribunals will only compensate for actual loss. So if the employee has received redundancy pay and notice pay, and finds another job straight away, they won’t get much at an employment tribunal. If, however, they are subsequently out of work for a couple a years, it could cost their previous employer a lot more,” says Millington.
Getting in help
Redundancy is a complicated procedure, so it’s worth getting as much help as possible. The Department of Trade and Industry publishes a number of guidelines and the Advisory, Conciliation and Arbitration Service also has a useful website (www.acas.org.uk). But if you are still not confident, it could be worth getting some professional help.
“We advise employers to come to us as soon as they get an inkling that redundancies may be on the cards,” says Lynda Harrison of Berg & Co.. “Legal professionals can help you with your action plan and will also be available should you need advice during the consultation process.”
However, Elsey has a word of warning,
“Don’t assume that solicitors know what they are talking about. I have known some who only studied employment law when they were training and are now completely out of date. Make sure that you go to someone who is current with employment law, whether a solicitor or a business adviser.”
After the redundancies have been completed, you should pay some attention to your remaining workforce. Although they may feel relieved at first at having survived, this can soon turn to anger, guilt and a feeling of mistrust towards you.
“A lot of companies tend to forget those people [who are left behind],” explains Elsey. “They have finally got the workforce they want, but the remaining staff feel so insecure that they leave at the first opportunity as well. You need to do a pep talk, explain where the company is going and make it clear that their jobs are safe.”
You will need to rebuild morale and address any feelings of antipathy. Make it clear that the redundancy was unavoidable and conducted in the fairest way possible. And remember, you’re doing it for the good of the business as a whole – everyone will benefit if your company is fitter and more competitive as a result.