While the economy grows, the news is reporting many sectors facing staffing shortages. However until the 30 September 2021 it is unclear how much this is affected by the final month of furlough.

As business now set out how they will grow over the coming year and a new phase of learning to live with Covid-19, many businesses are readjusting how they trade. Unfortunately often such changes and plans result in the needs of the business driving a reduction in the number of employees they have on their payroll.

In this guide, we look at the process of making redundancies and the impact furlough has on making them.

Utilising the furlough scheme

There have been some concerns voiced by the Government regarding the furlough scheme being used to support costs such as statutory redundancy payments and lieu of notice, rather than to support the continuation of employment.

The legislation clearly encourages any redundancy process to begin after Furlough has stopped but there appears be no formal guidance preventing employers utilising the scheme to cover some of the notice period payments within redundancy..

On 31 July 2020, the Government brought out new legislation to ensure furloughed employees receive statutory redundancy pay and notice pay on their normal wages, rather than on their reduced furlough rate. Therefore, if you are planning on any redundancies for furloughed colleagues, their pay needs to be topped up to the full 100%, calculated using an average of 12 weeks of normal pay even if they are furloughed.

Employers must also be able to demonstrate the business case for the employees redundancy that ignores a distinction between employees being furloughed or not.

How much will redundancy cost?

It sounds like making redundancies will help save a business because it reduces the cost base for the business going forward. It can, however, have some significantly high costs up front.

Essentially the older and longer serving an employee is, the more expensive it will be to make them redundant.  

This is often part of the reason why businesses operate a last in, first out policy. Added to the fact than generally newer staff are less productive then staff who have been in the business for years.  However, you would need to provide a clear fair and objective election process as to how and why you have retained certain employees, as otherwise an unfair dismissal case could be bought against you.

Staff who have been with a business also tend to have higher salaries than a more junior employee, making their cost for redundancy higher still.

The elements to calculating redundancy cost are:

  1. Statutory/Contractual Notice Period
  2. Statutory/Contractual Redundancy payment

You would need to check your employment contracts to determine what has been included under these terms and conditions. Most would refer to the statutory requirements, which is the minimum by law that you would need to pay.

To calculate the statutory requirements, we have provided a free tool to help with this calculation. Fill in the short form at the bottom of the page to receive your copy.

There is also a calculator available on HMRC’s website, but their calculator doesn’t help calculate notice periods and costs of this notice period.

How the Statutory Notice Period is calculated

When making redundancies the employee is entitled to a Statutory Notice Period. This means that the employee is entitled to income for a set number of weeks after being given notice that they are redundant but before their employment formally ends.

The notice period varies from one week’s notice up to 12 weeks’ notice depending on long they have worked for their employer. Effectively 1 week’s pay for each full year they have worked for the business.

This pay is based on the employee’s normal wages, rather than their wages under the Job Retention Scheme (if they are currently furloughed).

Because the notice period is inside their employment period the furlough scheme can be used to help you to cover some of the outlay, and you just need to top up the difference.

If you do not choose to use the Job Retention Scheme as part of the notice period, say they had not been previously furloughed, then employers can pay a lump sum for the relevant number of weeks of notice up as lieu of notice.

This could provide a more imminent leaving date depending on your business circumstances, and would also avoid any further accruing of holiday entitlement.

But you cannot claim for lieu of notice through the Job Retention Scheme.

How Redundancy Pay is calculated

Employees with more than 2 years continuous service who are being made redundant are usually entitled to Statutory Redundancy Pay based on length of service, age and pay up to a statutory maximum of 20 years:

  • Half a week’s pay for each full year an employee has worked under the age of 22
  • One week’s pay for each full year an employee has worked between the ages of 22 to 41 years of age
  • One and a half week’s pay for each full year that an employee has worked if they are 41 years or older

Redundancy pay, for non-directors, under £30,000 is not taxable.

How does furlough affect these calculations?

Serving notice of redundancy to a staff member while they are on furlough, will cause the employer to need to top up the rate of pay to 100% of their normal salary during the notice period. Legislation has now been put in place to enforce this.

You also need to bear in mind any employees on variable hours. If you are calculating their redundancy or notice pay, then it would need to be calculated on the previous 12 weeks of work completed, prior to being furloughed.

Therefore, if an employee was furloughed in March 2020, then you would need to include the hours/pay worked in December 2019, January 2020 and February 2020 as a minimum of 12 weeks.

Essentially the redundancy calculations will ignore the lower pay rate given while the employee was on furlough.

Planning considerations for making redundancies

If you are in the unfortunate position where you need to consider redundancies, then the following process should be followed:

  • Planning
  • Stopping or reducing overtime
  • Recruitment freezes
  • Identifying areas for retraining or redeployment
  • Offering existing employees sabbaticals and secondments
  • Pay freezes
  • Identifying the areas/departments and job roles which would make up the pool of selection
  • Invite employees to volunteer for redundancy or early retirement
  • Consultation – individual and collective
  • Introducing a fair selection criteria
  • Notifying the individuals to be made redundant

Depending on the scale of your redundancies, different legal requirements do apply.

If you are making up to 19 redundancies, there are no rules about how you should carry out the consultations. If you are making 20 or more redundancies at the same time, the collective redundancy rules apply.

Collective consultations can either be with a trade union rep or an elected employee rep and you would need to cover the following:

  • Ways to avoid redundancies
  • The reason for redundancies
  • Which jobs are at risk?
  • How to keep the number of dismissals to a minimum
  • How you will select employees for redundancy
  • How to limit the effects for employees involved, for example by offering retraining.
  • How redundancy pay will be calculated

Length of consultation period

There is no time limit for how long the period of consultations should be, but the minimum is:

  • 20 to 99 redundancies – The consultation must start at least 30 days before any dismissals take effect.
  • 100 or more redundancies – the consultation must start at least 45 days before any dismissals take effect.
  • Fewer than 20 redundancies – There are no set rules to follow, but it is good practice to fully consult employees and their representative.

By law you must have at least one face to face consultation with your employee, but it can be taken over the phone or using video or conference-calling technology if you both agree to it and there is a clear need.

You may need to meet again with the employee to make sure you respond to any of their queries or suggestions and requests.

What to discuss in the consultation

The consultation is an opportunity for you as the employer to discuss the changes you are planning and why the employees are at risk of redundancy. You should be discussing the following:

  • Ways to avoid or reduce redundancies
  • How people will be selected for redundancy
  • Opportunity for reasonable time off to attend interviews
  • How the business or organisation can restructure or plan for the future.

As an employer you do not have to agree or make any changes that an employee suggests, but you do need to show that you have listened and considered their ideas and tried to come to an agreement.

At every meeting, you as the employer should write individually to the employee confirming what had been discussed, and if necessary, invite them for a further consultation meeting.

It is advised that any notes from the meeting are sent alongside the letter to allow the employee to review these.  It is best practice for the employer to sign the minutes of the meeting confirming that the notes represent a true reflection of the consultation.

Whatever you as the employer decide to do about your furloughed employees and redundancies, honest and open dialogue with your employees can make a significant difference.

Employees are most likely to accept temporary changes to their employment terms if they are well informed about the challenges, pressures and difficulties your business face, and the steps you are taking to protect their jobs by keeping the business afloat.

We can help you

Ultimately making staff redundant is going to be a significant cost to your business.

We have, sadly, helped a number of clients over years with these issues, including businesses that unfortunately are shutting down.

If you require further details on the redundancy process including how to conduct a consultation, understanding the correct timescales for redundancy or what information is required in the follow up letters please contact Donna Bygrave, our HR Specialist at donna.bygrave@a4g-llp.co.uk


Calculate your employee’s statutory redundancy pay

If you have any problem downloading or using the tool, please email feedback@a4g-llp.co.uk.

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Donna Bygrave

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Donna Bygrave

Personnel and Training Manager

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