In today’s tough economic climate, once-thriving startups and small businesses may look to reduce their wage bill and make staff redundant. This step-by-step guide outlines the options, including ways to avoid redundancy and what procedures should be followed if the headcount does need to be cut permanently.
Step 1: Consider if redundancies are actually needed
Startups and small businesses impacted by the coronavirus pandemic could find that they have too many staff for the level of business they now have. But before making compulsory redundancies, they should examine alternative ways to cut wage costs.
Reducing the wage bill without losing employees
Companies may want to stop using freelancers, contractors and casual labour and cut down or end paid overtime for staff. Employees could be asked if they would like to apply for voluntary redundancy or early retirement. If some staff apply for either, selection methods should be unbiased.
Temporary lay-offs and alternative jobs
While waiting for business to improve, startups and small businesses may lay-off employees temporarily with their agreement. This is unpaid, although employees will be entitled to a statutory guarantee payment of up to £150 per day paid by the business, and can apply for a redundancy payment if the lay-off continues continuously for more than four weeks. Employees may also be offered – in writing – an alternative job within the company.
Job Support Scheme
Startups and small businesses may put some or all staff on the Job Support Scheme, which is running for six months after replacing the Coronavirus Job Retention Scheme (furlough) at the beginning of November. Employers can make use of the scheme even if they did not use the furlough programme. Under the new scheme, employers pay for hours actually worked, which must be at least one-fifth of normal. For the remaining unworked hours, the employer covers 5% of the wage bill and the government covers up to 61.67%, capped at £1,541.75 per month. There is greater help for businesses required by law to close.
Step 2: Selecting, consulting and informing staff when making compulsory redundancies
If the decision is taken to go ahead with compulsory redundancies, these should be made in a fair and open way that respects correct procedures, with staff kept informed at all stages.
Selecting individuals for compulsory redundancy
The first step is to select individuals for redundancy fairly, which means not making any decisions based on age, sex, disability or race, among other characteristics. Maternity or paternity-related factors should also not be part of the selection process, nor must whether they are in, or represent, a union. But attendance and disciplinary records, quality of work, overall skills and capability can be considered.
Informing and consulting staff
Startups and small businesses are unlikely to make 20 or more redundancies, so they should be exempt from the need to follow collective consultation rules. But while there are no set statutory procedures, companies have to inform and consult staff during the redundancy process to ensure they do not dismiss staff unfairly, something that could spark an employment tribunal for unfair dismissal.
Meet affected staff members
Employees should be told at an initial meeting – which may be carried out remotely – that they are at risk of redundancy. It should also be explained to them why they face losing their job. After a period to consider the situation, such as a few days, they should be given the opportunity to suggest alternative roles they could carry out. If nothing ultimately proves suitable, the redundancy should later be confirmed in writing and at another meeting.
Step 3: Ensuring redundancy processes are carried out correctly
As well as selecting and informing staff properly, startups and small businesses that make compulsory redundancies should take account of statutory rules when the redundancy process goes ahead.
Depending on how long they have worked for the company, employees have a right to paid notice of a certain length. If they worked for the company for between one month and two years, at least a week’s notice must be given. For those employed for more than two years, the entitlement is a week per year up to a maximum notice period of 12 weeks. During this time they should be paid the average of their salary for the previous 12 weeks. It is permissible to end employment immediately if the staff member is paid for the notice period.
Employees with more than two years’ service are entitled to statutory redundancy payments. For each full year of employment before their 22nd birthday, half a week’s pay is due, while between their 22nd and 41st birthday, it’s one week’s pay per full year. They are entitled to 1.5 weeks’ pay for each full year after their 41st birthday. A maximum of 20 years are taken into account and there are limits on weekly and total payouts. There is no statutory requirement to pay redundancy to staff with less than two years’ service, but startups and small businesses may choose to do so.
Employers are not required by law to allow staff to appeal their redundancy, but doing so is considered best practice and helps ensure that the overall process is fair. Ideally the individual dealing with the appeal should not be the person who carried out the redundancy processes.
While startups and small businesses have more flexibility than bigger employers carrying out large-scale redundancies, they are still required to go through a fair and open process. Taking care to ensure that the correct steps are followed protects the business from the risk of legal action and, importantly, ensures that what can be a difficult process for everyone is no more problematic than it need be.
Note – this information was correct at the time of posting and we recommend that you carry out your own independent research.
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