Editor in Chief (interim) AccountingWEB
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Redundancies and furlough: Get the details right

Since the early weeks of the coronavirus lockdown, many employers have been aware of the likelihood they will need to make people redundant. This article addresses the key issues they are going to have to consider.

4th Aug 2020
Editor in Chief (interim) AccountingWEB
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Redundancies are inevitable after Covid-19. Here's how to manage the process
iStock_Redundancy_Fizkes

In AccountingWEB’s coronavirus Q&A webinar on 27 May, 54% of participants predicted that up to 10% of their clients would be making redundancies and 24% expected between 10-20% of clients would need cut their workforces. “Redundancies are going to be inevitable. That’s the sad reality,” said Sandy Green from The HR Dept.

How organisations deal with the situation will have a huge impact on their reputation, retention and motivation of remaining employees, not to mention the future success of the business, according to David Clarke from Workforce Advisory on our sister site HRZone.co.uk.

This article addresses the key issues they are going to have to consider.

CJRS complications

The Coronavirus Job Retention scheme (CJRS) was specifically designed to prevent mass lay-offs and has been intertwined with redundancy issues ever since. With the flexible, second phase of the furlough scheme coming to an end on 31 October, employers facing the reality of letting people go have to confront when and how they are going to do it.

The requirement for consultation periods under employment law, from a minimum of 30 days if 20 redundancies are being made up to 90 days for 100+ employees, has accelerated those conversations. For 20+ redundancies, the employer has to fill in a Department of Works and Pensions form that they are undertaking a redundancy and a consultation exercise and must allow employees to put forward a representative to speak on their behalf. If they are in a union, the union must be involved, or the process will be deemed unfair from the off, Green warned.

Smaller companies laying off fewer than 20 employees do not have to meet the statutory minimum, but still need to consult the affected employees to ensure the process is fair. Although this can be done in as few as five days, it usually takes about 20 days for a smaller employer to go through the process, said Green.

Making people on furlough redundant

On 17 July HMRC updated the CJRS rules to clarify that statutory and enhanced contractual notice could be reclaimed under the CJRS as the person in this situation is serving their notice rather than receiving pay in lieu of notice.

“Where you must make redundancies, you should do so in accordance with the normal rules. This includes giving a notice period and consulting staff before a final decision is reached. You can continue to claim for a furloughed employee who is serving a statutory notice period, however grants cannot be used to substitute redundancy payments,” the guidance stated.

AccountingWEB’s CJRS expert Kate Upcraft raised a minor health warning for employers in Northern Ireland. The Employment Rights Act 1996 is restricted to Great Britain, so the accompanying statutory instrument (SI 2020/814) that came into force on 31 July 2020 needs to be reflected in corresponding regulations in Northern Ireland to take effect.

“The legislation was rushed through to put beyond doubt that employees receiving redundancy pay, pay in lieu of notice or were serving their notice should have that calculated based on their pre-furlough pay,” said Upcraft.

“There had been split views in the legal community as to whether there was a requirement to do this if the employee’s contract had been successfully varied to reduce it to the 80% required under the CJRS. The requirement to calculate a week’s pay based on the pre-furlough pay looking back 12 weeks prior to the notice of redundancy being served, applies only to statutory redundancy pay/notice. It does not apply to any enhanced entitlements.”

The regulations will also apply to the calculation of compensation in respect to unfair dismissal and other breaches of employment rights which also use a ‘week’s pay’ calculation.

“If an employee is on furlough, and they are currently receiving 80% of their wage under phase two of CJRS, employers may need to ‘top up’ to 100% during any notice period to avoid claims for unlawful deduction of wages and breach of contract from employees,” said Toni Trevett of XPert HR, a regular contributor to AccountingWEB. The severance costs will be higher as a result, so she advises employers to consider asking employees to use up any accrued but untaken holiday during their notice period.

Key questions for employers

The government’s guidance is reasonably robust, and as long as it is applied with some common sense you should be able to steer away from obvious traps. If the issues arising go above your head, it is always worth seeking professional advice.

On HRZone, Richard Thomas from Capital Law set out seven questions employers should ask themselves about their redundancy plans.

First is whether it’s the most legally straightforward way to dismiss employees. Statutory rules kick in on redundancy payments and trying to go through a formal consultation process in the middle of a pandemic will complicate the process.

One key condition the lay-offs need to fulfil is the existence of a “genuine redundancy” situation. A relatively easy exercise in the current situation, Thomas suggests.

The fairness of the process should be paramount, and where the employer needs to identify the pool of employees who will be at risk from redundancy. Fair and objective selection criteria should be applied, based on things such as length of service; disciplinary history; performance, skills, qualifications, experience and appraisals.

An employee’s age, sex or race are NOT suitable criteria and could be considered as discriminatory factors by an employment tribunal, resulting in higher penalties. Nor should absence for family or disability-related reasons, trade union activity or whistleblowing come into consideration.

Has the employer considered alternatives to compulsory redundancy? “Before and during any meaningful process, you should consider other ways in which compulsory redundancies could be avoided, or at least reduced,” Thomas advises. These alternatives could include voluntary redundancies, early retirement, alternative roles, reduced or more flexible working patterns and other cost-cutting measures.

Employers are under a legal obligation to consider these alternatives for employees with more than two years’ service.

Consultation considerations

The obstacles are more significant for organisations looking at 20+ redundancies and take the employer into collective arrangements where they have to abide by the government procedures. If the employer neglects to follow the correct procedures, employment tribunals can award up to 90 days’ uncapped pay per affected employee.

Provided that the employer allows suitable time, takes employee representations on board and is clear about the reasons and criteria for redundancy decisions, consultations processes can be carried out remotely using platforms such as Zoom, Microsoft Teams or Google Meets.

Whatever the size of your organisation, however, David Clarke writes: “Keeping employees informed both in the run-up to redundancies being made and during the process is critical. Businesses should be transparent with staff, and make use of internal communications channels, as well as offering face-to-face contact.”

Redundancy payments

The government guidelines for calculating redundancy pay are very straightforward and apply to any employee who has been employed for two years or more. The basic entitlements for statutory redundancy pay are:

  • Half a week’s pay for each full year when the employee was younger than 22
  • One week’s pay for each full year of employment between the ages of 22 and 41
  • One and half week’s pay for each full year you were 41 or older.

The calculation is capped at a maximum of 20 years employment and the average pay earned per work in the 12 weeks leading up to the redundancy notice is used for any calculation. HMRC clarified that anyone paid less than usual because they were on furlough will receive a redundancy pay-off based on what they would have earned normally.

The employee will also be entitled to normal pay during their contractual notice period, and HMRC guidance confirms that being on furlough does not affect any other employment rights. Payments in lieu of notice and termination payments above and beyond the statutory minimum enter a more complex world of tax calculations, which will be covered shortly in a separate article.

Replies (5)

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@enanen
By enanen
05th Aug 2020 09:53

So what rate do you use is the big question? Pre increase NMW or post increase NMW rate for redundancy? Someone direct me to the legislation on this?

Thanks (0)
By Rebecca Cave
05th Aug 2020 09:59

All employees on furlough should be receiving 80% of thier normal pay not 70%.

Thanks (1)
Replying to Rebecca Cave:
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
06th Aug 2020 09:33

My mistake in attempting to update a quote from July. Apologies to Toni Trevett - the 70% grant rate doesn't apply until September.

The text has been corrected to show this.

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By AndrewV12
05th Aug 2020 13:47

Its over to us now, to get spending (cash not card) to save jobs and support the economy, Get spending (if you are in as position to do so), its lucky we live in a consumer society.

I am not talking about going out and buying cars or luxury fashion, more like shoes, trousers, suits things are going to need to buy anyway sooner or later.

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By alan.falcondale
06th Aug 2020 12:41

Is there any guidance on when an employer makes less than 20 redundancies in one month and then another amount a month or two later and this would take the total to over 20? e.g. 15 redundant in June and 15 redundant in August
Does a cumulative gross come into play
thanks

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