Being made redundant is tough for anyone but a decent redundancy package may help soften the blow. So what should you offer your employee? "The norm these days is to offer the employee statutory redundancy pay plus notice pay under contract, or allow them to work out their notice. It only tends to be bigger companies that offer enhanced redundancy payments," explains Phillip Millington of Osborne Clarke.
You are not generally obliged to offer redundancy payments to employees:
over the retirement age
under 18 years old
who have been continuously employed by you for under two years
that accept alternative employment at your company
Everyone else who has been in continuous service for two years or more may receive redundancy pay.
The statutory scheme is based on employees’ age and length of service. It pays half a week's wages for every year of service for workers aged between 18 and 21; one week's pay for every year of service for those aged between 22 and 40; and one and a half week's pay for every year of service for people over 40 and under 65. However, there is a limit - currently set at £280 a week for 20 years' entitlement, which means the maximum payment under the statutory scheme is currently £8,400: 20 times one and a half weeks at £280 a week.
If you are in dire financial straits, to the extent where making the redundancy payment would put your business at risk, you can ask the Department of Trade and Industry to pay the employee direct from the National Insurance Fund. You’d then be expected to pay back the payment as soon as possible.
If an employee feels that they have been selected unfairly for redundancy, they have can complain to an employment tribunal.
Some employers try to safeguard against a claim when they make a redundancy, explains Millington. "Employers sometimes offer the employee what they are entitled to and a few pounds extra if they agree to sign a compromise agreement. This removes their right to an unfair dismissal claim, but the employee has to obtain legal advice before signing the agreement. You therefore have to be careful that offering this doesn't alert them to the possibility of a successful claim."
If a complaint is made, the tribunal will not look into whether it was right to make redundancies, as that is a business decision for the employer. However, it will look into the overall fairness of the selection and whether sufficient consultation has taken place with those selected.
"The maximum compensatory payment for unfair dismissal is £60,600, but in general employment tribunals will only compensate for actual loss. So if the employee has received redundancy pay and notice pay, and finds another job straight away, they won't get much at an employment tribunal. If, however, they are subsequently out of work for a couple a years, it could cost their previous employer a lot more," says Millington.
Getting in help
Redundancy is a complicated procedure, so it’s worth getting as much help as possible. The Department of Trade and Industry publishes a number of guidelines and the Advisory, Conciliation and Arbitration Service also has a useful website ( http://www.acas.org.uk/). But if you are still not confident, it could be worth getting some professional help.
Legal professionals can help you with your action plan and will also be available should you need advice during the consultation process. Make sure you do go to someone who is up to date with employment law, whether a solicitor or a business adviser.
After the redundancies have been completed, you should pay some attention to your remaining workforce. Although they may feel relieved at first at having survived, this can soon turn to anger, guilt and a feeling of mistrust towards you.
You will need to rebuild morale and address any feelings of antipathy. Make it clear that the redundancy was unavoidable and conducted in the fairest way possible. And remember, you're doing it for the good of the business as a whole - everyone will benefit if your company is fitter and more competitive as a result.