Business Advice Services News

In todays economic climate, redundancy is a harsh reality for employees and employers. Employees fear losing their jobs and employers fear that if they don’t cut costs their companies will not survive.  In this article we discuss the key areas that employees and employers should consider if faced with redundancy.

COMMUNICATION
If redundancy is in the offing, it is important that the employer communicates to the workforce, both those that are going and those that are staying, as early as possible.

Employees like to be kept informed with regular information on a company or organisation’s progress. If the news is not good, it is even more important that it is clear and accurate. Thousands of people in the construction and retail industries have already experienced redundancy. Many more are likely to, not only in those industries but others too, as the ripple effect of credit crunch spreads wider and wider.

RIGHTS and PROCEDURES
Employees and employers should know their rights and the proper procedures, respectively. If an employer does not follow the correct procedure, the employee can sue for unfair dismissal and if successful, can be awarded substantial compensation, i.e. up to 90 days pay. If an employer wants to shed more than 20 employees, the union or an employees’ representative has to be consulted before notice is given 30 days before the redundancies come into effect or 90 days in the case of 100 plus going. Individual employees should be consulted by the employer. If not, there could be grounds for unfair dismissal. It is worth the employee and employer having a witness at this and any other meetings in the process.

PAYMENT
When it comes to payment, for those employees on higher earnings, it is worth looking into the most tax efficient methods of settlement. £30,000 of redundancy is tax free. Anything beyond that is taxed at the employee’s highest rate. If still employed, full PAYE deductions will be made on settlements over £30,000. On the other hand, if the employee has left the company/organisation and received his/her P45, then 20% tax will be deducted initially. An employee will then be expected to include the balance in his/her next annual tax return, which will produce a temporary cash flow benefit for up 12 months. Lapsing of share options may also need considering and a procedure agreed.

PENSIONS
Any pension accruals should be included in the severance payment. If part of the severance payment is transferred into an employee’s pension scheme, it will not attract National Insurance contributions in which case it may be possible for an employee and employer to be able to agree a higher settlement figure without it costing the employer any more money.

For those employees 50 years old before 6 April 2010, it is possible to take pension benefits from the age of 50. Anyone reaching 50 after then will have to wait until they reach 55 to get pension benefits early. Employee and employer may be able agree retention of transitional benefits including medical and life insurance and family income protection until normal renewal date(s).

OUTPLACEMENT
Larger companies and organisations provide outplacement facilities in redundancy situations with a view to assisting employees to not only get alternative employment but also to help reduce the trauma of being made redundant. This can include career decision support e.g. voluntary redundancy/redeployment, clear message training, “pick up” support immediately after announcement, redeployment/internal vacancies, combating “survivor syndrome”, retirement/life options, starting up a business, sourcing training, job search, market connections.

SOCIAL RESPONSIBILITY
Whilst it may not be possible for a smaller company or organisation to do all this, they should be able to refer employees to the appropriate agencies to receive the attention and assistance they need. It is in the interest of the employer to provide a Consistent Social Responsibility (CSR) message internally to those remaining and to those going, who may be needed again when things change for the better and an opportunity for re-employment arises.

For assistance in Employee/Employer redundancy matters and employment law advice, call 0800 130 0473 or
Email: mailbox@fightyourcorner.com

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For general information on Redundancy and leaving your job, visit:

http://www.direct.gov.uk/en/Employment/RedundancyAndLeavingYourJob/DG_10026616