Dealing with redundancy during Covid-19 outbreak
The Coronavirus Job Retention Scheme (CJRS) was launched to support employees during the Covid-19 outbreak, but as many businesses face the reality of a tough economic outlook, redundancy may become necessary.
History will be the judge as to the success, or otherwise, of CJRS, but already the media is reporting news of job losses, such as travel food outlet Upper Crust expecting to cut up to 5,000 jobs and thousands more across the retail, hospitality and aviation sectors.
With rising unemployment figures, making the decision to become familiar with the key elements of redundancy pay and its associated processes is a wise one.
Consulting with employees who are selected as being at risk of redundancy requires sensitive handling and an open and honest exchange. It mustn’t be carried out as a ‘lip service’ exercise, and in selecting which employees are at risk of redundancy, care must be taken to avoid direct or indirect discrimination.
Make a plan and consider how you might be able to avoid compulsory redundancies. ACAS suggests alternatives, such as offering voluntary redundancies, flexible working, ceasing recruitment and upskilling employees to fill other roles. Furlough was designed specifically to support this by funding a period of lay off to support longer term employment.
The need for collective consultation is triggered where 20 or more redundancies, at one establishment over a period of 90 days are expected. In this case the employer has a 30 day period to begin consultation with staff representatives or an appropriate trade union.
Where 100 or more redundancies are to be made the employer has a 45 day period to begin consultation with staff representatives or an appropriate trade union.
If non-union staff or union representatives are themselves on furlough they may carry out duties and activities during furlough (non-work) hours to support individual or collective consultation as long as by doing so they are not generating income or providing services for their employer or a connected organisation.
Notice of redundancy
Notice periods are subject to statutory limits based on length of service:
- 1 month – 2 years = minimum notice is 1 week
- 2 years – 12 years = 1 week for each year of service to a maximum of 12 weeks
Notice can only be given once consultation is concluded.
Face to face communication is considered best practice, albeit during the Covid-19 outbreak the employer will need to have adapted processes to allow for consultation which may make use of virtual communication channels. In any event, written confirmation must be given to the employee that includes:
- The notice period and leaving date
- How much redundancy pay is due and how the redundancy pay was calculated
- Details of other pay due to them – eg holiday pay, outstanding pay for hours worked etc
- When and how they will be paid, which must be when they leave or soon after
- Details of appeal process
Pay levels and limits
Redundancy pay can be made up from a contractual entitlement but there is a statutory minimum which is current set as a weekly maximum of £538 to a total maximum payment of £16,140 where an employee has completed two full years of service.
A calculator is available on gov.uk and replaces the ready reckoner of days gone by. This helps employers, agents and employees to calculate the total number of weeks’ entitlement, which is based on complete years of service and age:
- Half a week’s pay for each full year of service – aged under 22
- One week’s pay for each full year of service – aged 22 – 40
- One and a half week’s pay for each full year of service – 41 or over
This is capped at a maximum of 20 complete years of service.
Where an employee has pay that varies with each pay period, use the previous 12 weeks to calculate the average pay to use. If during the 12 weeks the employee has not worked (eg taken one weeks leave), count back one further week until you have 12 working weeks.
The employment contract may be more generous, but this outlines the statutory minimum that an employee must be paid.
Dale is 32 and has a normal weekly gross pay of £650, he has worked for his employer for 15 years and 2 months and he was given notice of his redundancy on 20 June 2020.
His redundancy pay is calculated as follows:
17 – 21 0.5 week x 5 = 2.5 weeks
22 – 32 1 week x 10 = 10 weeks
Total week’s pay due 12.5
The cap of £538 applies which when multiplied by 12.5 provides Dale with a statutory redundancy payment of £6,725.
Different limits apply in Northern Ireland, where the calculator provides the figures in brackets in this instance.
Dale’s employer must provide a written statement of how the pay was calculated. If they used the calculator the results can be printed which provide a breakdown of each stage of calculation.
Redundancy pay and class 1A National Insurance Contributions
Redundancy payments that are being made as a genuine compensation of loss of office below the limit of £30,000 are not subject to PAYE income tax or Class 1 National Insurance Contributions (NICs).
In the event the payment exceeds this amount, the balance is subject to PAYE income tax and the employer will be subject to 13.8% payment on the balance for Class 1A NICs.
Since April 2020 Class 1A NICs are processed in real time and paid alongside usual payroll remittances where they become due for termination payments and sporting testimonial payments.
Employee rights during furlough
Whilst on a period of furlough, all employees continue to retain their same work rights that include the protection against unfair dismissal and the right to redundancy payments.
In the event that an employer is insolvent and unable to pay their employees final redundancy payments, the insolvency service can make payment of the redundancy and outstanding holiday pay. A range of guidance and factsheets are available for employees on gov.uk.
This is an area where legal advice is often a necessity, due to the wealth of legislation and case law that exists. Guidance is available from ACAS and on gov.uk however if in any doubt then this is an area where seeking legal advice is wise and The Law Society offer a ‘find a solicitor’ free service.
If you’d like further information on redundancy or the job retention scheme, Samantha Mann will be joining the Any Answers Live panel this coming Tuesday. Register now to join the session – spaces are limited.