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Managing redundancies

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1st Jun 2010
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No business owner wants to make redundancies but sometimes it's necessary. Judy Crook explains how to manage the redundancy process fairly and comply with legislation.

Having to make people redundant is one of the worst aspects of running a business. It’s an extremely emotional experience for all concerned but as a business owner, you have to be professional and you have to follow the right procedures. The last thing you want to do is to compound the misery with an unfair dismissal claim and an expensive employment tribunal.
The starting point is to consider what classifies as a redundancy. There are three situations in which redundancies occur: when you close down the business completely; when you cease to carry on the business in the place where the employee works or when the business no longer needs as many employees to carry out work of a particular kind.
If you need to make a redundancy because of a reduction in specific duties, you have to show that there has been a change in the nature of work, not a change in the standard that the employee is expected to meet. In other words, it is important that a redundancy is not a smoke screen for some other reason for dismissal, for example a performance-related issue.
In a redundancy situation, you have to provide reasonable warning and consultation. The selection of who is to be made redundant - and the procedure for handling the process - must be fair.
Selection
Where possible you should ask for volunteers across the business to minimise the number of compulsory redundancies. You are under no obligation to accept voluntary redundancy from an employee whose skills you’d like to retain. Be clear on the process that you will follow to assess which volunteers you are likely to accept. You will need to provide redundancy payment information before people can make a decision whether or not to volunteer.
Selection for redundancy must be clear and based on criteria, which is consistent, reasonable and objective. In other words, it should not be based on one manager’s opinion. The selection criteria could include the skills, experience and aptitude of the employee, the standard of their work performance and their attendance or disciplinary record.
Ensure your selection criteria does not discriminate directly or indirectly against anyone based on their gender, religion, ethnic origin, age, sexual orientation or disability.
If you have to make 20 or more employees redundant, within a 90-day period, you must notify the Department for Business, Innovation and Skills in writing. A form is available for this purpose.
Consultations
You need to inform the employee/s in writing that their job is at risk of redundancy and invite them to a consultation meeting. You should explain the business reasons for the proposed redundancy (site closure or restructure?); the selection criteria; the number of redundancies proposed and how the consultation process will be undertaken.
We recommend holding at least three consultation meetings over a two-week period, with at least a two-day gap between each meeting. The first meeting must be at least 24 hours after the employees have received the letter telling them that their jobs are at risk. If 20 or more employees are to be made redundant, you should consult with the appropriate trade unions or with employee representatives.
Your employees have a right to be consulted individually, no matter how many staff are being made redundant. Even if you only have one employee, you are under a legal obligation to consult with the individual. They are entitled to be accompanied by a trade union representative or a colleague.
The consultation process must be undertaken with a view to reaching agreement and you’ll have to show that you’ve tried to avoid the redundancies, tried to reduce the number of employees to be dismissed and tried to mitigate the consequences of the dismissals.
Some possible ways of avoiding or reducing the number of redundancies might include natural wastage, redeployment, suspending recruitment, reducing overtime or reviewing the employment of temporary staff. Some employees might be prepared to change jobs even if it means a downgrade. Representatives should also consider whether employees might be prepared to consider a temporary lay-off or reduced wages for a period.
You should also provide information on any vacancies which might be available, including a job description, person specification and the salary/wage band. An employee may refuse to accept an offer of alternative employment which he/she considers unsuitable but failure to offer any jobs which may be available elsewhere within the organisation can make an otherwise genuine redundancy unfair.
 
Giving notice
If a redundancy is to be made, you should inform the employee of the decision in writing. The letter should confirm the proposed redundancy, the notice entitlement, the termination date and the details of the redundancy pay. It should also include the employee’s right of appeal.
Employees are entitled to minimum periods of notice, up to a maximum of 12 weeks for 12 years or more continuous service. Those who have at least two years’ continuous employment are entitled to take reasonable time off with pay during the notice period to seek work or re-training.
Support
You may wish to consider how you can provide support to the affected employees, for example by offering severance payments, careers guidance, counselling, assistance with the costs of re-training or outplacement support to help them in their search for another job.
It’s also very important to support the remaining employees, following redundancies, to ensure that business productivity does not suffer. Bear in mind that the whole process can have a very negative impact on morale, motivation and performance focus. Those who remain can be left feeling guilty, stressed and anxious that they survived while colleagues lost their jobs. Try to explain to the remaining employees what happened, why the redundancies were necessary and what is needed now for the business to move forward.
 
Payment
The amount of the redundancy payment is based upon the employee’s age, length of continuous employment and gross average wage. The maximum amount of years to be taken into account in calculating a redundancy payment is 20.
Statutory redundancy payments can be small. You may choose to pay an ex-gratia payment in addition to the statutory minimum. All statutory and ex gratia payments are not subject to Income Tax or National Insurance if less than £30,000.
Appeals
Individuals are allowed to appeal against the decision and they should be given seven days to respond in writing, outlining their grounds for an appeal. It could be that they feel they were unfairly selected for redundancy, or that the redundancy process was not been carried out properly, or that a job that they felt was suitable was not offered to them. The appeal should be heard by a more senior manager or an independent manager from whoever made the decision to select the employee for redundancy.
These are the basic steps in a redundancy dismissal procedure. Always remember that redundancy is one of the most traumatic events an employee may experience. It should be a last resort but if you have to go through this difficult experience, try to follow a fair and legal process and keep those affected fully informed.
Judy Crook is senior HR manager at Right Hand HR, a leading HR outsourcing provider for SMEs.

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By Optimum PAYE
01st Jun 2010 11:04

Clarification on tax treatment

Useful overview but your comment "Statutory redundancy payments can be small. You may choose to pay an ex-gratia payment in addition to the statutory minimum. All statutory and ex gratia payments are not subject to Income Tax or National Insurance if less than £30,000" is a huge over simplification of the tax issues to consider on redundancy.

The £30k tax exemption is not automatic and careful consideration needs to be taken when some/all of the following may be in play as there can often be tax and NI liabilities arising:

Payments in lieu of noticeAccrued bonusesTerminal bonuses (extra payments to stay on for an extended period)Continuing benefits, e.g. PHI, etcSale/gift of company assetsEx gratia payments

A breakdown in communication between HR and Finance on these issues when redundancies are taking place is often the cause of costly mistakes on the tax side.

 

Optimum Paye

www.optimumpaye.co.uk

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