Employers may require to consider the possibility of redundancies either to reduce costs or to achieve an organisational structure that meets their business needs. This can be a difficult time for both the employer and the affected employees.
Various issues should be considered prior to redundancies taking place including deciding if the business needs give rise to a genuine redundancy situation, choosing appropriate redundancy pools and fair selection criteria, consulting with affected employees, calculating redundancy payments and following a fair dismissal procedure.
A Genuine Redundancy?
There will only be a genuine redundancy if the dismissal is for one of the following reasons:-
- the employer’s business or part of the employer’s business has ceased to operate;
- the employer’s business has moved to a different place;
- the need for a particular type of work to be carried out has ceased or diminished.
The final bullet point can be the most problematic and it is possible for there to be a redundancy situation even if the role of the employee who is being made redundant is still required provided that another employee's role is no longer required.
Employers must follow a procedure which is fair, objective and non-discriminatory. Employers should:-
- consider alternatives to redundancy such as recruitment freezes, salary cuts/job shares/reduction in hours worked;
- try to give as much warning as possible of potential redundancies;
- consult with all employees who may be affected about avoiding/reducing redundancies and the process to be adopted;
- identify any appropriate redundancy pools;
- use objective selection criteria;
- explore whether there is any alternative employment for any affected employee;
- allow a right of appeal.
Where less than 20 employees are being made redundant, consultation need only be directly with the affected employees. However, if a union is recognised, it would still be advisable to involve them in the process.
Where 20 or more employees are being made redundant within a 90 day period a ‘collective redundancy’ situation arises. In such circumstances the employer must notify the Department of Business Innovation & Skills and consult with a recognised trade union. If there is no recognised trade union representing all of the employees affected, the employer must consult with elected employee representatives before issuing redundancy notices. Failure to follow the collective redundancy procedure may result in a criminal offence being committed and may also result in awards of up to 90 days pay per affected employee.
Once an employee has completed two full years of service they are entitled to a statutory redundancy payment.
The amount of the redundancy payment depends upon the employee’s age and length of service as follows:-
- half a week’s pay for each year worked up to the age of 22;
- a week’s pay for each year worked between the ages 22 and 41;
- a week and a half’s pay for each year worked above the age of 41.
The statutory limit for a week’s pay is currently capped at £643 and the length of service is limited to a maximum of 20 years.
A redundancy payment calculator can be found here:-
or on our free iPhone and iPad employment law app - MF HR Mobile.
The redundancy payment should be paid on the last day the employee works or as soon as possible after that date. Redundancy payments up to £30,000 can be paid free of tax and national insurance contributions.
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