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The Ins & Outs of Redundancy

Many businesses are having to make some big decisions about their employees right now. If making redundancies is something you are considering here are a few things you need to be aware of. When making redundancies you need to do so in accordance with the normal rules. This includes giving a notice period and consulting staff before a final decision is reached.

We understand that when you are facing employment issues such a redundancy situation, you will naturally have lots of queries and questions about the process, such as: Is this a redundancy situation? What does a fair redundancy look like? How does pay work for an employee being made redundant? How is a redundancy payment calculated? What if an employer becomes insolvent?

These are just some of the common questions we receive at QualitySolicitors Chapman and Chubb. See below a list of the most frequently asked questions together with general responses.

Is this a redundancy situation?

Redundancy dismissals are defined as dismissals “wholly or mainly attributable to” a business closure, a workplace closure or a reduced requirement for employees to perform particular roles. If a dismissal is being made for these reasons it is a redundancy situation. – for instance, an employer needing to reduce their workforce from 8 employees to 10 employees due to reduced demand is a redundancy situation, and the affected employees would be entitled to a redundancy payment (if eligible).

Dismissals based around an employee’s conduct or capability to do their role are separate from redundancy and do not require any payment to be made to the affected employee.

What does a fair redundancy look like?

Redundancy is a potentially fair reason for dismissal, but there are several criteria an employer must follow when looking to make redundancies, including following a fair procedure with a consultation period, and using an objective scoring criteria to determine who will be made redundant.

Employers also have a duty to consider if there is any suitable alternative role available for the employees affected by redundancy.

Failure to follow a fair selection procedure or have a consultation period can entitle employees to make a claim for a “protective award” at an employment tribunal.

How does pay work for an employee being made redundant?

While going through a redundancy consultation, an employee should be paid their usual wages up to the date the employee leaves the business. The employee is also entitled to payment of their statutory notice period, which will vary depending on their length of service (or to their contractual notice period if this is longer).

This payment may be affected by the furlough scheme – however, from 1st December 2020 employers cannot claim notice pay through the furlough scheme.

Eligible employees (generally those with more than two years’ continuous service) are entitled to a redundancy payment as well.

How is a redundancy payment calculated?

Statutory redundancy payments vary based on the length of service of the employee being made redundant, together with the age of the employee concerned. It is based on what the employee would usually receive as a week’s pay. An employer can choose to offer more than the statutory minimum, or to offer redundancy payments to employees with less than two year’s service.

There is a helpful calculator on the website here:

The payments are calculated based on the employee’s full normal wage, even if the employee has been on furlough for some time.

What if an employer becomes insolvent?

If an employer becomes insolvent, or goes into administration, then the Redundancy Payments Service (part of the Insolvency Service) will step in to cover most payments. We have written in more detail about their service previously.

The redundancy payments helpline is temporarily unavailable because of coronavirus (COVID-19). However, the insolvency service can still help and can instead be reached by email

What next?

For more information, whether you are an employer or employee, please ring us on 01773 540480. We can help employers navigate all options, including redundancy or settlement agreements, and advise employees on exactly what their rights are. All initial telephone calls are free.

Posted in: Employment

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