Making employees redundant is a difficult process, and it’s essential to handle it competently, especially when it comes to redundancy pay. Molly Monks FIPA, licensed insolvency practitioner and director of Parker Walsh, said: “When a company is faced with making redundancies it can be an incredibly difficult time. In smaller businesses the staff are often loyal, long-serving members of the team.”
The same redundancy rules apply to all sizes of business. Statutory redundancy pay is available to employees with two continuous years of service who have been dismissed, laid off, or put on short-time working.
Statutory redundancy pay rates are based on age and length of service. Employees get 1.5 weeks’ pay for each full year of employment after their 41st birthday, a week’s pay for each full year of employment after their 22nd birthday, and half a week’s pay for each full year of employment up until their 22nd birthday.
The length of service is capped at 20 years, and the money employees get is based on their average pay over the past 12 weeks. Weekly pay is capped at £751, with a maximum payout sum of £22,530.
Employees have the right to a written statement about the amount of redundancy pay they’re getting and how that’s calculated. Employers should not deduct tax from the first £30,000 of redundancy pay, including any enhanced redundancy pay and non-cash benefits.
If an employer doesn’t make the redundancy pay, or the sum is inadequate, an employee can take them to the employment tribunal. A claim must be made by the employee within three months of the redundancy.
Businesses at risk of becoming insolvent because of redundancy pay can contact the Insolvency Service’s Redundancy Payment Service for assistance.
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It’s easy to make mistakes during the redundancy process. Trying to disguise something else as redundancy can lead to costly unfair dismissal claims.
Bobby Ahmed, managing director and solicitor at Neathouse Partners, said: “One of the biggest mistakes employers make is assuming that if they cannot afford redundancy pay, they can simply dismiss staff for another reason.”
Small businesses should check employment contracts carefully, as some contracts provide enhanced redundancy terms that go beyond the statutory minimum.
Aleesha Amjad, employment senior associate at Knights, advises small businesses to keep track of redundancy payments and calculations, as employees with fluctuating hours, variable pay, long service, or complex contract arrangements can make calculations more difficult.
Annie Gray, employment partner at Schofield Sweeney, notes that neglecting certain employees can lead to issues.
Employers should be aware of their financial situation and plan accordingly. They can consider opening a business bank account to manage their finances effectively.
