Redundancies: timing it right

Employment Law Partner Paul Maynard discusses redundancies.

The Office of National Statistics has recently reported that the rate of redundancies increased from an average of 3.9 per thousand of the population in January-March 2020 to 4.8 per thousand for the period of April to June 2020 alone.  

Throughout July and August our employment team have been inundated with calls from employers needing to resort to redundancies amid uncertainty about whether it is possible to do so whilst staff are furloughed (-the short answer is that it is).  From the level of enquiries we have received, we predict that the ONS statistics which are next due to be published on 15 September 2020 will reveal a significantly higher rate of redundancies, to coincide with the tapering off of the Coronavirus Job Retention Scheme (“CJRS”).

Since 1 August 2020, employers have had to meet employer national insurance contributions and pension contributions for those employees who remain on furlough leave.  For an employee earning the maximum of £2,500 per month, this has come at a cost to employers of over £300 per month per individual.

From 1 September 2020 employers will also have to begin contributing 10% towards the pay of furloughed employees – bringing the cost of furlough to over £550 per individual.  From 1 October 2020, employers will have to contribute 20%, taking cost to over £800 per employee, on the maximum rate.

As things stand, the Government has not committed any support to employers after 31 October 2020 despite the strong predictions of further regional lockdowns this winter.  With many employees on 3-month notice periods, that the threat of further lockdown in the likely absence of continued government support will leave employers with little alternative but to start planning redundancies now for the months ahead.

Most employers are aware that small-scale redundancies (20 or fewer) can generally be achieved within 2 weeks.  This starts with placing the employees at risk, consulting with employees on the proposals and any alternatives to redundancy, in some cases carrying out an objective selection process, and alerting employees to potential internal vacancies in all associated companies.    Employers wishing to make 20 -99 redundancies within the same establishment must also notify the redundancy proposals to the Government (at the risk of criminal sanction), comply with collective consultation rules and observe a 30-day moratorium.  Employers looking to make 100 or more redundancies will have to take the same steps, but face an even longer wait of 45 days.  It is only once these stages have completed that a redundancy notice can be served.  

It is usually the case that notice periods attract 100% of the employees’ salary but it remains possible to run notice periods alongside any period of furlough leave, as many employers have been doing, thereby reducing the overall amount of redundancy costs.   Provided the correct procedures are followed, employers may also require employees to take any holiday during their notice periods in order to avoid an additional liability for accrued but untaken holiday pay upon termination of employment.  With the phasing out of the CJRS, there is a real incentive for employers to begin redundancy processes now, rather than later in the year, in order to maximise the support they can obtain from the Government during these difficult times. 

A word of warning however.  The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020, which came into force on 5 August 2020, make clear that Statutory Redundancy Payments must be calculated by reference to an employee’s normal pay without taking into account any artificial reduction due to furlough leave.  The costs of redundancy payments as opposed to notice payments cannot be recovered under the CJRS.

Any employers requiring assistance with redundancy or restructuring programmes should contact Paul Maynard.

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