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 and BERR

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.

Three-quarters of SME’s would not have Alistair Darling on their payroll!

A poll carried out among owner-managed businesses across the country by Clifton Asset Management has found one third of UK companies believe the media is in danger of “talking the economy into recession.”

The survey, also found that almost three-quarters of SMEs would not trust Alistair Darling with their own company finances by appointing him as their FD.

The majority (65 per cent) said the Chancellor showed no signs of being “business friendly”, and not a single one believed that Gordon Brown’s government acknowledges the value to the UK economy of the small business sector.
The research also found that the majority of owner-managed businesses (56 per cent) feel totally neglected by their bank since the onset of the credit crunch.

Ellis Organ, financial director of Clifton Asset Management, said: “While there can be no denying the gravity of the situation facing the UK economy, many businesses – 33 per cent – clearly feel that media commentators seem determined to talk us into a full-blown recession, with only 15 per cent of respondents to our survey agreeing with the view that a recession is imminent.

“Only 11 per cent told us that they are seeing the symptoms of a major downturn, with approaching half of those who took part in our survey highlighting strong order books and no noticeable increase in problems over issues such as late payment.”

“Only one in five owner-managers in our survey said they would consider employing Alistair Darling as their FD – but not without references and a thorough interview process, leaving just 6 per cent who have real confidence in his ability,” said Ellis Organ.

Credit Crunch
The survey found that reaction to the credit crunch by banks is causing problems for some businesses. Of those surveyed, 14 per cent said their existing facility had been reduced, or that higher interest rates and collateral security had been imposed. Although, 28 per cent said their bank had been happy to extend facilities with no change in interest or security arrangements.

Ellis Organ stated: “While 15 per cent of our survey sample said they had seen a noticeable upturn in the amount of contact they received from their bank, eager to check on their exposure and solidity, some 56 per cent felt that they may as well not even exist as their bank is concerned.

There is a widespread feeling that Gordon Brown’s government does not appreciate the contribution that SME’s make to the economy.

Only 4 per cent of firms said decisions such as the recent U-turn on capital gains tax were proof that their contribution is recognised by government, while 9 per cent say there is some element of appreciation, notwithstanding a reduction in tax benefits for owner-managed businesses.

Ellis Organ concluded by stating: “This leaves 85 per cent in our survey effectively feeling snubbed by this government.

“For most of these, there is no question that the ever-burgeoning mountain of red tape is their biggest headache, and that Gordon Brown’s promise to “light a red tape bonfire” remains an empty one.

“The people who responded to our survey, and countless others like them across the country, form the backbone of our economy. Our survey highlights once again that these individuals continue to feel ignored by… a government which only appears to pay attention to the concerns of big business.”

The survey was commissioned by Clifton Asset Management, the country’s leading alternative to banks for owner-managed business finance and strategic planning.