As a small business, one of the main issues on a daily basis are cost-saving exercises. If you are the business owner, you have the legal right to make changes to your business to protect the interest of the business. After making lots of small cuts, you may find you’re in the position where you need to make larger cuts in costs. Larger cuts can sometimes come from the workforce and their salaries and benefits. Before making certain roles redundant you should initially look at where in employee costs that you can make other savings. Could you reduce some payments to the pension fund for a little while; remove a benefit that isn’t really used; ask staff to work reduced hours; or you could ask employees to take a small cut in their pay for a while (potentially compensating at a later date)? If these options are what you wish to explore, you must do them under proper consultations. There should always be a clear business case, written in a way that could be made available to employees if they requested it. The business case needs to outline the background, where you want to get to, how you plan to get there, the individuals your decisions will impact and when you plan to introduce them. You would also need to ensure there is an adequate timeframe between consultations for individuals to consider the proposed changes, for them to feedback their thoughts and for you to have properly considered and discounted them before any changes can be put into place. Ensure that at least 2 meetings take place and these meetings are meaningful.
If you are at the point where making redundancies are your only option, then around your 2nd consultation meeting, you should be looking at providing information to individuals what the redundancy package will look like. This will be finalised in further meetings. If there are no opportunities for other work in the business and you have two or more individuals being made redundant, you could ask for volunteers to come forward for redundancy (voluntary redundancy and voluntary severance).
Some employers may offer a redundancy package, but if not, then statutory would apply. Please note, only employees with more than 2 years’ service will be entitled to redundancy.
Statutory Redundancy Pay
Redundancy pay is based on your earnings before tax (called gross pay). Income tax is not deducted from statutory redundancy pay.
For each year worked, you will be entitled to:
- age 18 to 22 – 0.5 x weekly salary x years of service
- age 22 to 40 – 1 x weekly salary x years of service
- age 41 and older – 1.5 x weekly salary x years of service
If you have your 22nd birthday or 41st birthday, you will then be entitled to the higher rates of pay as above. Please note, your maximum weekly salary is capped at £525 (as of 06/19) and redundancy pay only covers 20 years of service. If you’ve worked for your employer for 26 years, unfortunately, you will only get pay for 20 years.
Voluntary Severance
A voluntary severance package is money an employer is offering to pay to entice you to take redundancy voluntarily. Therefore the voluntary severance package is usually higher than the statutory redundancy package or your company redundancy package.
RISKS
All of this is done with a huge amount of risk and this is why many employers don’t undertake redundancies until the business is at the brink of closing.
- Consulting on changes can have a significant impact on employee morale and may cause the individuals to think differently about the employer. This can not always be prevented. But if the employer consults early enough, is open and honest from the outset, then employees will feel involved and not kept in the dark, helping to maintain morale. The other risk is of course that you don’t carry out the redundancies fairly. You may not include something in the process and treat other differently.
- An employee may claim there was a case of wrongful dismissal, which is a breach of contract in the way you were dismissed, ie the employer may not have given the employee their proper notice, or failed to follow the procedures within the employment contract.
- The contract of employment may permit the employer to make changes to the terms and conditions and if it doesn’t they must agree any changes. If they do not, it could amount to a breach of contract.
A good HR Consultant with a wealth of experience on managing change can reduce this risk for you. Call our HR experts at Specialised HR Solutions for advice on the best steps to take to reduce your risks: