Making staff redundant is something no business owner wants to do, but sometimes it’s necessary for a business’s survival. However, it can be a complex area of employment law.
In this guide, we’ll take a look at what you need to know when it comes to making staff redundant.
What Is Redundancy and Who’s Entitled to It?
Redundancy is when an employee is no longer needed because the business is closing. Or the work they were carrying out is no longer required.
An employee is offered redundancy pay if they lose their job for this reason. It’s designed to act as a cushion between one job and the next.
However, not everyone is entitled to it.
If you offer an employee alternative employment within the company but they turn it down, they’re not entitled to redundancy pay. If you offer to keep staff on and they say no, they are also not entitled to redundancy pay.
You must warn employees of the possibility of redundancy and how it could affect them before announcing redundancies. You may also need to decide which departments are affected to narrow down your redundancy pool.
Be upfront with anyone who’s at risk of redundancy. Let them know why they’re in the redundancy pool. You can also ask if there are any requests for voluntary redundancy during this stage.
If an employee takes redundancy voluntarily, companies tend to offer a larger payment than they’re legally obliged to make. When you offer above statutory redundancy pay, it’s more enticing for staff to volunteer. As an employer, you are saved from going through the compulsory redundancy process. It is discretionary how much you offer above the compulsory rate.
How Redundancy Pay Is Calculated
The statutory redundancy pay someone is entitled to depends on three key factors: how old they are, what their weekly pay is, and how long they’ve been employed by your company.
- Under 22: half a week’s pay for each full year at the company.
- Aged between 22 and 40: 1 week’s pay for each full year at the company from age 22 and half a week’s pay for each full year before that.
- Over 41: 1.5 week’s pay for each full year they worked from age 41; 1 week’s pay for every full year worked between 22 and 40; and half a week’s pay for any full years worked under 22.
The length of service is capped at 20 years of service. As of 6 April 2020, the maximum weekly pay is capped at £538. The maximum amount of statutory redundancy pay is £16,140.
Redundancy pay is not subject to tax and National Insurance, however much your staff receive. Any holiday pay included as part of a redundancy package is subject to tax.
What about Flexible Employees?
If someone works flexible hours, the amount of pay they’re entitled is to be worked out differently. It’s based on the average number of hours they’ve worked over the last 12 weeks. Using this calculation, you can work on their average weekly pay. You can then use the method above to work out what their redundancy payment should be.
What If You Can’t Pay Redundancy?
The Redundancy Payments Service (RPS) provides redundancy pay if doing so will harm your business, or your business is already insolvent.
What If They Were Furloughed?
If the employees were furloughed at some point this year, and were only being paid 80% of their wage, the redundancy calculation is still based upon what they would normally have earned.
While there are legal requirements you must adhere to when making an employee redundant, you do have some options that you can use to further cushion the blow to employees taking redundancy. You can offer staff a larger payment than what’s required if they leave voluntarily. Financial help is also available if you find that you need to make employees redundant but doing so could damage your business.
If you feel unsure about what you should do when making staff redundant, it’s always worth seeking professional HR advice from an external expert such as the HR Dept.
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