With many small businesses facing difficult decisions as a result of the COVID-19 crisis, you may be considering making redundancies in your small business.
Having to restructure your business and downsize can be a tough and taxing time for any business owner, not least during a pandemic. This can especially be the case if the process involves multiple redundancies, which is why having access to employment protection and advice is so beneficial as a small business.
FSB members have access to our employment protection helpline. It is essential that you call an expert before you take any action that may result in the dismissal or redundancy of an employee. This will help ensure you follow the right processes and stay on the right side of employment law.
Our guide explains what happens during the process of making staff redundant, and what you need to do to ensure the process is carried out in a compassionate, legal way.
What is the redundancy process?
Redundancies can sometimes be unavoidable, especially if your business is changing, removing a service area, downsizing, or closing down. There are a number of steps through the redundancy process that should be considered. These are:
- Assess and avoid
Is the redundancy process different due to COVID-19?
In order to remain fair and compliant, the redundancy process should be carried out in the normal way.
However, you may need to make some changes in light of social distancing guidelines, such as using technology like video calls in place of face to face meetings with employees. Where employees are currently furloughed or working from home, it’s important to have updated contact details for communicating with them throughout the process.
Handling redundancy proceedings incorrectly can cause a number of problems for your business. If problems arise, they may result in an employment tribunal claim, which can be costly and make the situation even more difficult for your business.
To reduce the risk of being taken to an employment tribunal, your redundancy process needs to be compliant and followed correctly.
Step-by-step redundancy process
Assess and avoid
The first step in any redundancy process is to work out how many staff members you need to let go, and what steps can be taken to avoid this.
The aim is to avoid having to make compulsory redundancies where possible. There are several methods which could be used to do this.
Primarily, you could look to see if any staff are willing to take voluntary redundancy or early retirement. This allows staff to leave earlier than they planned and, in the process, helps to protect other jobs by doing so.
You could also aim to cut down on wage costs, either by stopping overtime, halting recruitment, or even cutting working hours. Employers must agree changes to employment contracts with employees, including on a temporary basis. You might also have to stop working with freelancers and contractors. This can help to ease spending and help your business potentially get through a rough patch.
Another option could be to lay-off employees. This is where they are given unpaid leave (with the exception of a £150 statutory guarantee payment), while your business looks for a solution. However, it’s important to note that if the unpaid leave runs for longer than 4 weeks, the employee can make a claim for their redundancy pay from you. Employers may also wish to consider extending furlough for those that have been previously furloughed by 10 June 2020, or for those returning from parental leave whilst the Coronavirus Job Retention Scheme remains in place; where they may otherwise be at risk of redundancy. Please see our Factsheet on Furlough and the Coronavirus Job Retention Scheme on the FSB Legal Hub.
If compulsory redundancies are unavoidable, then you should begin communicating this to your staff members.
It’s best to keep staff fully aware of what is happening at all times. Failure to do so can lead to an employment tribunal potentially ruling in favour of the employee, if they seek to claim for unfair dismissal.
The major steps to a redundancy consultation are:
- Notifying the Redundancy Payments Service where you are proposing to dismiss (make redundant) at least 20 employees within a 90 day period (there is no requirement to notify the RPS where you are making fewer than 20 employees redundant)
- Meet with union representatives or directly with staff – during COVID-19, this can be done via video calls or other technology
- Inform all parties involved about the redundancies and provide enough time for this to be considered
- Respond to requests for more information about the redundancy process
- Notify affected staff, letting them know when their last working day will be
- Finally, issue redundancy notices
The amount of statutory notice you should give to staff varies depending on how many years they have been with your company. This tends to range from anywhere between one to twelve weeks. During this time, you still need to pay staff.
In some instances, you can give staff pay in lieu of notice. This means paying staff for the work they would have done during their notice period, but you immediately end their employment. This at least covers the staff member while they look for new employment.
Notification goes beyond letting staff know when their employment ends. Throughout the entire consultation process, staff should be fully aware of what is going on and steps should be taken to support them during this time, as redundancy can be difficult for all parties involved. This can include help with CVs, employment advice, and guidance on the next steps they should take.
Calculate redundancy pay
The last step within redundancy proceedings is to calculate the payment each member of staff is entitled to.
Statutory redundancy pay is based on staff fulfilling several criteria:
- They must have a contract with your business
- They need to have at least two years’ continuous service at your business
- They must be being dismissed or laid off (for example, early retirement doesn’t qualify for redundancy pay)
You can offer redundancy to staff who have been at your company for less than two years. However, this isn’t mandatory.
Calculating redundancy pay should factor in the length of time an employee has worked for your business, as well as their age.
- Employees between 22 and 40 years old will get a week’s statutory pay for every year they have been at your business.
- For employees under 22 years old, this is half a week’s statutory pay.
- For employees over 41, they receive a week and a half statutory pay.
Mandatory redundancy pay is capped at 20 years of service. However, you can pay staff more should you wish. Again, this isn’t mandatory and is at the discretion of your business.
If in doubt, talk to the experts
Getting your redundancy process right is crucial. This is a difficult time for any business, and the last thing you want is more undue stress and difficulty caused by being taken to an employment tribunal.
We advise that you contact a legal professional before taking any action.
FSB members have access to our employment protection service, including a 24/7 legal advice line, template letters and factsheets, which can guide you through the redundancy process whilst helping you stay on the right side of the law.