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We outline elements such as the legal procedures to be followed and statutory redundancy pay, along with other key principles concerned with the redundancy of employees.
We consider the main principles involved concerning the redundancy of employees including the legal procedures to be followed and statutory redundancy pay. If you are an employer in the Northampton and Rugby area we, at J R Watson & Co Accountants, can provide you with assistance or any additional information required.
There have been many changes to employment law and regulations in the last few years. A key area is the freedom or lack of freedom to make an individual redundant.
An employee’s employment can be terminated at any time but unless the redundancy is fair an Employment Tribunal may find the employer guilty of unfair dismissal.
We set out below the main principles involved concerning the redundancy of employees. We have written this factsheet in an accessible and understandable way but some of the issues may be very complicated.
Professional advice should be sought before any action is taken.
Rather than make employees redundant, the government has introduced a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. HMRC expect the scheme to be up and running by the end of April.
When on furlough, an employee can not undertake work for or on behalf of the business, but they can undertake training or voluntary work. Employers can use a portal to claim for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated employers’ NIC and minimum automatic enrolment employer pension contributions on that wage.
Employers should discuss with their staff and make any changes to the employment contract by agreement and may need to seek legal advice on the process. Furloughed employees must have been on the relevant PAYE payroll on 28 February 2020 and can be on any type of contract including employees on agency contracts or on flexible or zero-hour contracts. The scheme also covers employees who were made redundant since 28 February 2020 if they are rehired by their employer.
If workers are required to complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
If an employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply. If an employer offers enhanced (earnings-related) contractual pay to women on Maternity Leave, this is included as wage costs that can be claimed through the scheme. The same principles apply where an employee qualifies for contractual adoption, paternity or shared parental pay.
Under the Employment Rights Act 1996, redundancy arises when employees are dismissed because:
In other words, the business reasons for redundancy do not relate to an individual but to a position(s) within the business.
Employers who propose to dismiss as redundant 20 or more employees at one establishment have a statutory duty to consult representatives of any recognised independent trade union, or if no trade union is recognised, other elected representatives of the affected employees.
Consultation should begin in good time and must begin:
Employees on a fixed-term contract which come to a natural end will be excluded from collective redundancy. However, where such a contract is being terminated early because of a redundancy situation the exemption will not apply.
Employers also have a statutory duty to notify the Department for Business, Energy and Industrial Strategy (BEIS) if they propose to make 20 or more workers redundant at one establishment over a period of 90 days or less.
If an employer fails to consult, a Tribunal has discretion to make a protective award of up to 90 days pay.
It is good practice in all organisations however, regardless of size and number of employees to be dismissed, for employers to consult with employees or their elected representatives at an early enough stage to allow discussion as to whether the proposed redundancies are necessary at all. Then they should ensure that individuals are made aware of the contents of any agreed procedures and of the opportunities available for consultation and for making representations. It must be remembered that redundancy is a form of dismissal and although it is not a requirement to follow a disciplinary and dismissal procedure which satisfies the requirements of the ACAS Code of Practice, namely to include a letter setting out the reasons for the potential redundancy, a meeting and an appeal process, it is best practice to do so.
Employers have a statutory duty to disclose in writing to the appropriate representatives the following information so they can play a constructive part in the consultation process:
To ensure that employees are not unfairly selected for redundancy, the selection criteria should be objective, fair and consistent. They should be agreed with employee representatives and an appeals procedure should be established.
Examples of such criteria include attendance and live disciplinary records, experience and capability. The chosen criteria should be measurable and consistently applied. Non–compulsory selection criteria include voluntary redundancy and early retirement, although it is sensible to agree management’s right to decide whether or not such an application is accepted or not.
Employers should also consider whether employees likely to be affected by redundancy could be offered suitable alternative work within the organisation or any associate company.
Employees who are under notice of redundancy and have been continuously employed for more than two years, qualify for a reasonable amount of paid time off to look for another job or to arrange training.
An employee will be deemed to have been unfairly selected for redundancy for the following reasons:
Employees who have at least two years’ continuous service qualify for a redundancy payment
The entitlement is as follows:
A week’s pay is that to which the employee is entitled under his or her terms of contract as at the date the employer gives minimum notice to the employee. The maximum statutory limit for a week’s pay is £538 from 6 April 2020, and the maximum service to be taken into account is 20 years. This means that the maximum statutory payment cannot exceed 30 weeks’ pay or £16,140. Employers may, of course, pay in excess of the statutory minimum.
The employee is also entitled to a period of notice or payment in lieu of notice by statute and their contract of employment.
If you are an employer in the Northampton and Rugby area we will be more than happy to provide you with assistance or any additional information required on redundancy procedures so please do contact us at J R Watson & Co Accountants.
04 Sep 2020
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