Making Sure You Get The Redundancy Process Right
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the redundancy process needs to be fair
It is imperative that a company makes sure that its redundancy process is fair. If not, they leave themselves at risk of expensive, unfair dismissal claims which can further impact on existing financial pressures, which of course is the last thing a Company needs if they are trying to save costs.
To ensure that a genuine redundancy situation exists, it must be proved that an employee’s job no longer exists; in the words of the legislation, the job role must have ‘ceased or diminished’. It is also important to be aware that it is the job role that is at risk, not the employee.
Failure to employ a fair process of selection can result in the wrong personnel being placed at risk of redundancy and dismissed, with the result being a considerable claim for compensation.
Perhaps the most important thing to get right in the process is the selection criteria; if this is not carefully considered, businesses can end up retaining the wrong personnel and losing the personnel that are best placed to help the business move forward.
Employees Over Two Years’ Service
If more than one employee is highlighted for redundancy and they all have over two years of continuous service, they must be taken through a formal redundancy process; if you do not, this could result in a claim for unfair dismissal.
Part of a fair process should include a scoring system which details the areas that staff will be measured against.
“At Risk” Notice
Employees affected should be issued with an “at risk” notice followed by a three-stage consultation where a pool of any available positions within the company must be made open to them and, should they accept a new role, they have four weeks to try it out.
Minutes of all consultation meetings should be taken in order to evidence that the correct procedure has been followed. Well-kept, up-to-date personnel files would be of benefit to support the scoring and selection process and essential for proving to a Tribunal that any process was fair in the event of a claim being made. It would be prudent to ensure that you have a comprehensive redundancy procedure in place.
Resources to help your business
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How Do you Begin The Redundancy Process?
You should attempt to make preliminary plans of when and how the redundancies should be done. No pre-determination should be made about which employees are going to be made redundant at an early stage. All alternatives such as layoffs and short-time working should be considered to avoid redundancies being made.
At this stage, you should also select in which areas of the business the redundancies will need to take place and decide which employees will need to be pooled for redundancy. It is crucial that an objective criterion is used to determine which employees should be in the redundancy pool, and no employee is discriminated against unfairly.
You should inform employees who may be at risk of redundancy as soon as possible. Good communication is key throughout this process to ensure open discussions with employees, which will, in turn, ensure that employees remain motivated throughout, as they will feel you are trying to protect their well-being.
The consultation process will vary depending on the number of employees you intend to make redundant.
- 1-19 employees: If you are making less than 20 employees redundant, this is known as a small-scale redundancy. Legally, you are required to have meaningful individual consultations with every employee at risk. There is no requisite period of consultation, it must just be enough to be meaningful in the circumstances. It is more than likely that you will need more than one consultation meeting with each employee. However, you should meet with each employee at least once and listen to any alternative suggestions that they may put forward, even if you do not agree with them. Although you are not legally required to have group consultations in a small scale redundancy, you should check the employee’s contracts of employment, any company policies or any union agreements that may specify that group consultation.
- 20+ employees: If you are making 20 or more employees redundant (large scale redundancy), your legal obligations are slightly different. The consultation proves must start at least 30 days before the first dismissal if 20-99 employees are being made redundant over a period of 90 days.
- If 100+ employees are being made redundant, then consultation must start at least 45 days before the first dismissal over a period of 90 days or less.
Employers should consult with recognised trade unions or employee representatives if there is no recognised trade union. Similarly to small-scale redundancies, employers should ensure that the consultation process is meaningful.
You must also consider alternative job roles for employees. If there are any suitable alternative vacancies, this should be offered to the employees in the pool. If an employee rejects a suitable alternative job offer, then they may forfeit their right to a redundancy payment.
If there is a suitable alternative job, a new contract of employment must be offered before the old contract comes to an end. The new job must start immediately or within 4 weeks of the old job ending.
If once consultations have concluded, and there are no suitable alternative roles, you must decide which employees are to be made redundant and begin the process of sending dismissal notices. No dismissal notices can be sent until consultation has been concluded.
Some employees will be eligible for a statutory redundancy payment. To be eligible, an employee must have been continuously employed for two years, not have unreasonably refused any alternative employment, and been dismissed due to redundancy.
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Contractors And Agency Staff
If an employer does not consider attempting to reduce the number of redundancies necessary by terminating any contractors or agency workers, then it may be queried how genuine the redundancy situation is.
It could give employees the right to claim unfair dismissal unless it can be proven the contractors or agency workers have a specific skill set that employees don’t have, and they are needed for genuine business reasons.
Calculating Statutory Redundancy Payments
If an employee has been made redundant, and they have been continuously employed for 2 years, then they will be entitled to a statutory redundancy payment. The payment will be calculated based upon:
- Length of service (this is capped at 20 years)
- Their age
- Weekly gross pay (this is capped at £489.00 per week)
Statutory redundancy pay is calculated as follows:
- 1 ½ weeks’ pay for each complete year of service that the employee was aged between 41-64;
- 1 week’s pay for each complete year of service that they were aged between 22-40;
- ½ week’s pay for each complete year of service that they were aged between 18-21.
Other Factors To Consider
As redundancy is a form of dismissal, an employee will still be entitled to either their contractual or statutory notice period of dismissal.
Employees will also be entitled to reasonable paid time off work to look for a new job, provided that they have at least 2 years continuous service.
If the redundancy payment is up to £30,000, it will not be subjected to tax and NI. Anything over £30,000 will attract tax at the appropriate rate.
About the author
James is on the Business Development & Account Management team at Neathouse Partners and regularly posts articles surrounding issues in HR & Employment Law, including case law & legislation updates. If you have a particular issue you would like addressed, feel free to drop James an email, and he will be happy to offer his assistance.
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