With gloom about redundancy all around us, it is important to get to know the facts from the myths as there are so many people saying things about redundancy that aren’t true.
Let’s look at some common misunderstandings about redundancy…
The employer has to consult with employees about redundancy for 30 days
Not true – statutory consultation applies where it is proposed to make 20 or more roles redundant. With less than 20 redundancies the employer is still obliged to consult with employees and must act reasonably and engage in meaningful consultation.
The employee is entitled to statutory redundancy pay
Only employees with over 2 years completed service will be entitled to Statutory Redundancy Pay – SRP. Entitlement to SRP will be determined by the employee’s age and length of service and their basic weekly pay and subject to a cap, SRP is tax-free. In some situations, a Company may offer contractual enhanced Redundancy terms in which case the employee must be paid in accordance with those terms.
Notice entitlement – contractual or statutory
There are minimum statutory periods of notice – to a maximum of 12 weeks notice for 12 or more years service. However, if the employee’s contract sets out a different – ie longer – notice period, the employer is required to pay the period of notice set out in the contract. In some situations, the employee will not be required to work their notice and is paid in lieu of notice (often referred to as PILON), which will be taxable.
Last in, first out…
Known as LIFO, going back 20 plus years, this was a very common form of determining who would be made redundant but LIFO is much less common these days. Employers can still use LIFO as the basis of redundancy selection but often employers use some form of selection matrix which takes account of skills, competence, capability etc. Often a selection matrix will also take account of an employee’s sickness/absence, timekeeping and disciplinary record.
A selection pool applies where there are a number of people who do the same job but in the future, there is a reduced requirement for the number of people to do the job. So, for instance, there may be a team of 10 and in future there are only going to be 5 in the team so under these circumstances there would be a “pool of selection” and the 10 team members are put into a pool and the Company would use a selection matrix process to determine who will be made redundant.
Pregnancy, maternity and redundancy
An employee who is pregnant and/or those on maternity leave can be made redundant. However, it is unlawful to select an employee for redundancy because they are pregnant as this could lead to a sex discrimination claim. It is advisable to take care when managing a redundancy situation which involves either a pregnant employee or someone on or due to return from maternity leave. Also, employees on maternity leave are entitled to be offered suitable alternative employment where it exists ahead of others also at risk of redundancy.
Mental health and redundancy
If an employee is selected for redundancy because of mental health issues, the likelihood is that this will be unlawful and could lead to a claim for disability discrimination. Any redundancy situations involving employees with mental health issues must be managed carefully.
Made redundant over Zoom/Teams
There is no statutory right to be made redundant “in person” and during Covid-19, employers have been using Zoom and Teams for redundancy discussions and consultations. Good practice would always suggest that redundancy should be dealt with face to face but social distancing and restrictions on employees going into the workplace often mean that it is sensible and more expedient for the process to be managed over Zoom or Teams.
Offering alternative roles
Clearly, if there are other roles in the business that could be done by an employee who is being made redundant, the employee should be given the opportunity to apply. Generally speaking, it is preferable for the employer to make the employee aware of jobs that are available rather than the employer assuming that the employee would not be interested in a certain role. The employer should not assume that the Office Manager who is being made redundant is not interested in a job as a Cleaner. Let the employee decide if they want to apply.
Reducing pay if the employee takes a new role
If the employee is in a redundancy situation but decides to accept a different role in the business as an alternative to being made redundant, the employer does not have to maintain the employee’s original salary because the employee has decided to move into a new role rather than taking a redundancy package. And, if they move into a new role, they maintain continuity of service and have a right to a statutory trial period in the new role.
When an employee is made redundant, they are entitled to the balance of any accrued holiday (up to the date of termination) less days taken in the current holiday year and holiday pay is taxable. If the employee is being paid PILON, the employee will not necessarily be entitled to holiday entitlement that they would have accrued during the notice period as this will depend on provisions in the contract of employment.
Up to £30,000 of redundancy pay is tax-free…..
Yes, the first £30,000 will be tax-free but if an employee is entitled to SRP and receives a payment in lieu of notice (PILON) and this comes to less than £30,000, the PILON will be taxable. So, the statement that the first £30,000 of redundancy pay is tax-free is correct but needs to be carefully understood because PILON will always be taxable.
AB HR Solutions have extensive experience of managing clients in all sectors with managing redundancy processes and if you need HR Support, get in touch.