What to consider before making redundancies

Rolls Royce and Lloyds Bank are just some of the most significant players to announce major job cuts.

Redundancy is a difficult for companies of all sizes but can be particularly challenging for small business owners, who rarely have an HR person to manage the redundancy process.

Small business owners in many cases will have worked personally with the staff they are having to consider for redundancy, often building up personal friendships, relationships and sometimes resentments along the way.

Redundancy can be a straightforward process if handled correctly but it is so easy to get it wrong, leading to accusations of unfair dismissal, which can prove costly, so it’s important to get the right advice and take the right steps in handling the redundancy process.

Key things you need to consider include:

Voluntary redundancies

Once you’ve made the decision that you have no choice but to make redundancies, you can initially request volunteers for redundancy before starting a compulsory selection process. However, you should reserve the right to reject applications for voluntary redundancy if that would mean losing valuable skills.

Being clear and fair on the selection process

If you are making compulsory redundancies, you must identify employees for “the pool of selection”, applying selection criteria to make a fair selection of those who will be made redundant. This is usually done by a scoring system. If you are subject to a claim of unfair dismissal, a tribunal will consider this pool of selection and the criteria applied to consider whether these were fair. It’s essential that you get the selection and consultation process right as lack of fair and meaningful consultation is the number one cause of unfair dismissal claims relating to redundancy.

Considering alternative employment options

As part of a consultation process, you must consider the possibility of alternative employment. If you’re in the position of being able to offer the redundant employee with an alternative position, the employee should be allowed to try the alternative job on a trial basis for a period of four weeks, whilst still keeping their entitlement to a redundancy payment.

The right to appeal

Once the decision to dismiss by reason of redundancy has been notified, the affected employee should be given the right to appeal against the decision. The decision and the right to an appeal should be confirmed in writing.

Be clear on the employee’s pay entitlements

An employee who is made redundant qualifies for a redundancy payment, provided that his or her length of service is two years or more.

In addition, an employee who is not required to work his or her notice will receive pay in lieu of notice according to his or her length of service.

The amount you need to pay a redundant employee is based on statutory redundancy payment and length of service, unless you provide a contractual redundancy payment scheme, but can also include:

  • Pay in lieu of notice
  • Unused accrued holiday entitlement
  • Final monies earned, including bonuses and commission payable.

The decision to make someone is a very difficult for most employers. Making sure that you get the right advice and follow the correct redundancy policies and procedures will at least help to ensure that you are fulfilling your obligations as a responsible employer. It will also protect your business from both potential tribunal claims and the reputational damage of an unfair dismissal claim.

The Forum of Private Business can provide detailed advice and support on redundancy situations and other business issues. For further information, visit www.fpb.org or call 0845 130 1722.

Image: Redundancy via Shutterstock



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