Making people redundant

Many businesses are being forced to reduce costs, and make employees redundant.  As an employer what are the rules on making people redundant?

The notes that follow highlight a few but not all of the considerations that affect redundancy pay outs:

Q. Do we deduct tax or National Insurance from redundancy payments?
A. No – as long as the amount does not exceed £30,000 and it is a genuine redundancy payment.
Q. Can I make anyone redundant?

A. If the employee is no longer required within the business then yes, but be AWARE that it is possible to unfairly select someone for redundancy, the grounds for unfair selection can be found on the government website here. Also, if there is alternative work within the business this must be offered to the employee before they are made redundant.

You should consult employees individually regardless of the number you plan to make redundant.

If you fail to do so, any subsequent dismissals may be unfair.

For redundancy dismissals, the statutory procedures may form part of the consultation process. However, the procedures only apply in non-collective redundancy situations, ie when you plan to make fewer than 20 employees redundant.

Under the standard procedure, you must write to each employee setting out why you are thinking of making them redundant and inviting them to a meeting to discuss the proposed dismissal. The employee has the right to appeal if you still decide to make them redundant.

If you fail to follow the procedure when it applies, any dismissals you make will be automatically unfair.

Q. Where can I get advice on rights and duties?
A. Try ACAS  www.acas.co.uk and BERR www.berr.gov.uk

Acas Helpline

08457 47 47 47

BERR Redundancy Payments Helpline

0845 145 0004

Q. What happens if I give an employee a company car or other goods in lieu of a redundancy payment?
A. Anything given other than money is converted to a cash equivalent – if the purpose of the transfer of assets is given to compensate an employee for his redundancy this cash equivalent forms part of the £30,000 tax free sum.

Q. What happens if our business cannot afford to pay the statutory redundancy due?
A. If absolutely necessary, the Redundancy Payments Office will make the payments.

Q. If I give a terminal bonus or payment for extra work done leading up to redundancy, is this tax free?
A. No – only genuine payments for redundancy are included in the £30,000 tax free sum.

Q. Which employees qualify for statutory redundancy?
A. To qualify at all, employees must have completed 2 years service since age 18.

Statutory redundancy pay is based on:

  • the employee’s age
  • the employee’s amount of continuous service – up to a maximum of 20 years
  • the employee’s weekly pay – up to a limit of £330 where the employee’s employment ends on or after 1 February 2008 (£350 on or after 1 February 2009)

Currently, the maximum SRP payable is  £10,500 (£9,900for redundancies before 1 February 2009).

There is a calculator to work out the amount due on the business link website here.
If you have concerns about redundancy as an employer or employee we would be happy to discuss the issues with you.

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