From 1 July, the Government’s contribution to the furlough scheme will decrease to 70 per cent, leaving employers to contribute 10 per cent to the total 80 per cent paid to employees for hours not worked.
In August and September, the Government’s contribution will then reduce to 60 per cent, leaving employers to pay for 20 per cent of an employee’s regular salary.
For some businesses, these are costs that they simply cannot afford, especially given that many companies may remain closed until mid-July thanks to the latest delay to the end of lockdown.
After the difficulties faced in the current trading environment, cash flow is something on most businesses’ minds.
Because of this, some employers will inevitably be considering reducing staff headcount and initiating redundancies in the weeks ahead. Before doing so, here are some key factors that all employers ought to consider:
Can you afford to pay the redundancy costs?
Employees that have served with the business for a considerable amount of time will be entitled to larger redundancy payouts.
Not only this, but the age of the employee, as well as their gross weekly pay, will also contribute to the value of the redundancy pay entitled to them.
Therefore, employers should think carefully about whether redundancy is right for their business.
In addition to this, employers need to pay contractual or statutory notice of termination.
Many businesses fail to pre-plan the redundancy process, resulting in business distress and insolvency. To avoid this, employers need to make sure that they calculate the cost of redundancies before begining the consultation process.
Timing is key
Depending on how many employees a business intends to make redundant, timing may be a critical factor.
This is because employers must notify the Secretary of State for Business, Energy and Industrial Strategy if they intend to make more than 20 workers redundant.
There’s no time limit for how long the period of consultation 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
This statutory consultation period should be taken into careful consideration when planning redundancies as it may lead to a longer process and additional costs.
What alternative options are available?
The T’s and C’s – Employers can look to adjust the terms and conditions of employee contracts and reduce their contractual entitlements. This may include reducing pay or working hours or altering benefits such as company sick pay, holiday entitlement or bonus payments.
The best and safest method in doing this is to reach an agreement with employees following a consultation process.
Whilst it is more likely that employees will agree to reduced salary or benefits if they are aware that the alternative is redundancy, you must consult them in a structured and professional manner.
Voluntary redundancies – Not all redundancies need to be enforced and before opening the process up to a wider consultation, employers may wish to approach their workforce to see whether any employees would be willing to take voluntary redundancy.
Often employer will offer small incentives to encourage employees to leave freely. Employers should offer this option to all employees, so as not to target a specific demographic, which could leave them open to claims of discriminatory behaviour.
Your property portfolio – If your current workforce is essential and redundancies are not on the cards, it is worth businesses reviewing their property holdings and leases.
In the post-Covid climate, your property may no longer be fit for purpose, and you can consider your options. If so, review your contract terms for any potential break clauses.
Another aspect that some companies may want to consider is remote working. After more than a year of many employees working from home, it might be worth considering whether office space or property is needed at all – especially if your employees can work as productively from their own homes.
Review your finances – So often, reviewing your finances is an underestimated option. But this can be an easy way to save businesses having to make redundancies.
From reviewing the rate of interest on business overdrafts to reducing energy costs, you may be able to establish whether there is a better deal to be found elsewhere.
There are many businesses across the UK feeling like they are in a state of uncertainty due to the current climate and Government support schemes coming to an end.
If redundancies are looking like the only solution to reduce ongoing costs then it is best to seek advice as soon as possible so you are supported when selecting your pool and throughout the consultation process.
At HR Caddy, we can guide you through the process of looking at your current workforce needs now and in the future. For more help or advice, please contact us today.