The coronavirus pandemic has changed the world in very many ways. The way people live, the way people interact and of course – the way people do business. Businesses around the world are having to re-think the way they operate, make adjustments to their models and look carefully at their staffing structures.
As part of this process, it’s possible that some businesses will be considering staff redundancies. As companies are forced to make tough decisions in order to keep their businesses viable, redundancy may be a way to maintain the health of the business.
The world however is a very different place now, compared to six months ago. The unprecedented nature of the coronavirus pandemic means that the government has stepped in to support companies with a range of benefits including the Coronavirus Job Retention Scheme – supporting businesses up and down the country and placing millions on furlough leave.
But as this scheme is gradually wound down by the government, it’s important that businesses considering redundancy procedures are equipped with the very latest information about how the to implement this process properly, particularly where furloughed staff might be involved.
What is the impact of the Coronavirus Job Retention Scheme for businesses considering redundancy procedures?
The UK Government’s Coronavirus Job Retention Scheme was created to help businesses deal with the economic impact of the Covid-19 pandemic. By placing employees on a temporary leave of absence – otherwise known as a ‘furlough’ leave – businesses could claim 80% of staff wages directly from the government, up to a cap of £2,500 per month.
A flexible phase of the scheme is currently in place up to October, allowing employers to bring staff back to work on a part-furloughed, part-employed basis. From 31 October however, the scheme will be stopped and employers will no longer be able to claim this financial support from the government.
In this changing economic picture, some businesses may be considering staff redundancies. This is never an easy decision for any business owner but it’s an important one that should be handled with dignity and respect for all involved. It’s also key to roll out this process in accordance with government rules around redundancy, with special consideration to staff that have been furloughed.
The fundamental rules around redundancy remain as they always have been. But while the furlough scheme is still operational and many staff are still at home, there are some extra pointers that businesses will need to consider if these employees are at risk of redundancy. These include:
- The logistics of running a redundancy process remotely. Furloughed staff will not be working or sitting in an office and it’s important that businesses manage the practicalities of the situation.
- Redundancy must remain a fair process, with pooling and selection criteria given careful consideration. It’s important not to discriminate against staff who have been placed on furlough and put in place a selection process that is based on clear and fair criteria.
- Staff who are being made redundant are likely to be entitled to a full salary payment while in their notice periods, regardless of whether they have been furloughed or not. Their redundancy payments must also be based on their full pay, rather than their furlough pay.
- Businesses should carefully consider the legalities of making staff redundant and ensure that any dismissal is not an ‘unfair dismissal’. This means considering other viable alternatives to redundancy, such as keeping the member of staff on furlough.
When to consider redundancies
As the furlough scheme continues to change and evolve, many businesses are considering their medium to long term health – and looking at redundancy as a possible option to keep the business afloat.
In these situations, it’s important that the redundancy process is a fair process, but at the current time it can be tricky to determine whether a genuine redundancy situation has come up – given the unusual nature of the furlough scheme.
It’s important to seek legal advice about making staff redundant while the furlough scheme is still active, in order to ensure that employment law is adhered to. At the moment all the usual regulations around fairness of any redundancy process are still in place, as the government support is still on the table.
As the 31 October deadline begins to loom, and the furlough scheme is withdrawn, more information is expected from the Government to help businesses make decisions about redundancy. In some cases, redundancy will be a business necessity.
Consultation with staff
It’s very important that businesses stick to rules around formal consultations with staff affected by potential redundancy. Employment law stipulates that a fair consultation should be carried out, and it’s important that businesses recognise this whether or not their staff are on furlough.
The logistics of running a staff consultation remotely should be properly thought out. Consultations with staff – whether collective or individual – may need to take place via a video conference or in writing. Employers should make time in the consultation process to handle these practical issues.
Employees also have the right to be accompanied to any redundancy meetings – this includes those taking place remotely. Videos calls or telephone calls could be a good option in these instances.
It may be necessary for the employer to engage with a Trade Union or staff representative group, if 20 or more redundancies are being considered within a 90 day time period. This can be tricky given the nature of the current situation, and employers should consider how to engage in a full and proper consultation while social distancing measures are still in place.
The furlough scheme is due to end on 31 October and employers should consider the impact this may have on redundancy consultation timeframes. Businesses should put adequate timings in place to ensure that full consultation can take place in a way that works around this deadline.
How to select roles for redundancy
It’s important that the redundancy process is fair and transparent. A list of selection criteria for roles at risk of redundancy should be drawn up, based on an objective list of considerations. These criteria must not be discriminatory in any way and full staff consultation should take place before they are confirmed.
For staff who have been furloughed, the same employment law around redundancy will apply, including rights around unfair dismissal and discrimination. Businesses should not automatically earmark furloughed roles for redundancy, for many reasons. These include:
- The initial reasons for which the furloughed staff were selected for furlough. These would have to be fair in those circumstances to remain a fair basis of the decision to make the roles redundant.
- Some staff may have been placed on furlough because they are shielding or have caring responsibility. Making these staff redundant could constitute as discrimination based on a variety of reasons. They should not be at increased risk of redundancy purely because they have been furloughed.
- Employers should consider whether to wait until the furlough scheme has ceased, before implementing any redundancies. The current situation is unprecedented, and there remains a grey area around making furloughed staff redundant, and the potential of an unfair dismissal claim.
Redundancy payments
When it comes to pay-outs, an employee’s rights should not be affected by their furlough status. All staff made redundant while furloughed will be eligible for a statutory redundancy payment, if they have two years or more continuous service with the business. These payments should be calculated based on the full salary of the individual, prior to the period of furlough. Any additional contractual payment should be calculated based on the terms and conditions of the contract, before the period of furlough.
Notice periods for staff made redundant while on furlough should also be enacted in accordance with their employment contracts. Pay during this period is most likely to be due at the rate of the employee’s pre-furlough salary, although there may be some legal discrepancies around this regarding statutory versus contractual notice pay.
For employers making a furloughed staff member redundant, there are certain costs that they will not be able to re-claim. These include:
- Payments associated with statutory redundancy
- Payments associated with contractual redundancy
- Payments associated with unused annual leave
- Extra compensation payments linked to the termination of employment
Employers may be able to reclaim certain costs:
- Costs associated with notice pay for staff carrying out notice periods while on furlough
- Costs associated with annual leave taken by the staff member while in a notice period
Both the above items can only be claimed for up to the relevant monthly cap set out in the furlough scheme.
Is the Covid crisis harming your business
You are not alone, the unprecedented damage due to the large scale forced economic shutdown has caused, and continues to cause, businesses of all sizes threats to their long term viability.
The friendly and helpful team at An Accounting Gem can help you navigate through this worrying time and towards the brighter future we all hope is not too far away.
Please call us on 01473 744 700 or send us an email at contactus@aag-accountants.co.uk and we will get back in touch with you ASAP.
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