Planning for redundancies after furlough is discontinued

The Coronavirus has brought about uncertainty and is likely to lead to huge change. It has exposed many businesses and their models for making money, some of which will not survive whilst, at the same time, it has created opportunities for others to embrace a new world.

There is no shame for a board of directors to admit it is in unfamiliar territory facing a financial and operational crisis that will require radical decisions as a result of the Coronavirus pandemic.

K2 Business Partners can help.

In this article: The furlough scheme has justified putting off dealing with the cost of employing staff but now it is due to be phased out boards need to make decisions about how many staff they can afford to keep on the payroll.

Impact of staff costs on business

Crucial to your decision-making process is a thorough knowledge of your pre-, during- and likely post-pandemic cash flow, overheads and management accounts. Points to consider include:

i.                Staff requirements pre-coronavirus

ii.               Use of Coronavirus Job Retention Scheme to fund staff on furlough

iii.              Anticipated staff requirements post-Coronavirus

iv.              Uncertainty about staff requirements going forward

Furlough scheme key dates

August 1: NI and pension contributions resume, Govt pays 80% of furloughed wages

September 1-30: Govt contribution reduces to 70%

October 1-31: Govt contribution reduces to 60% and maximum amount cap

November 1 scheme ended

 Considerations about staff

There are some statutory requirements on businesses in relation to employees that apply regardless of the current unprecedented situation and these will affect both the time it takes and the costs of managing the redundancy process.

So, you need to be clear about your obligations to staff even on furlough and about their outstanding holiday, notice and redundancy entitlements.

You also need to weigh up the pros and cons of acting now rather than putting off decision making so that your business is able to be both flexible and realistic going forward.

Consultation

It helps to smooth the process if you discuss the change in roles and staffing needs and the options before making firm decisions. These may include current roles and lack of work; the need to cut costs; the prospect of redundancies; possible changes to terms & conditions; or a blanket contract for everyone to have variable hours contract. Making one announcement to everyone at the same time will help avoid any perception of unfairness as you will be seen to be treating everyone equally.

Once you have made your announcement, we recommend that you follow up by meeting with each member of staff on a one-to-one basis to understand their particular circumstances before deciding upon which option to follow. For larger firms where over 20 people are to be made redundant then statutory rules for collective consultation rules will apply.

Redundancies

If the decision to make redundancies due to a lack of work is made then a formal redundancy procedure should be followed:

Among the decisions will be deciding on the departments and criteria for redundancies.

Departments involve grouping staff by department to identify how many roles in each will need to be retained and how many are redundant.

Redundancy criteria should consider factors such as skills/length of service.

Good practice involves meeting each member of staff to discuss selection criteria and scoring – you might get them to score themselves by comparing each criteria with other staff members. The scoring provides an objective basis for deciding who should be made redundant.

Then meet each member of staff to go through your decision.

Other factors employers must consider

Statutory redundancy notice periods - at least one week's notice if employed between one month and 2 years plus one week's notice for each year if employed between 2 and 12 years

You should also follow the collective consultation rules if making 20 or more employees redundant within any 90-day period at a single establishment. (While there are no set rules to follow if there are fewer than 20 redundancies planned, it’s good practice to fully consult employees and their representatives. An employment tribunal could decide that you’ve dismissed your staff unfairly if you do not.)

Collective consultation steps

You must notify the Redundancy Payments Service (RPS) before a consultation starts. The deadline depends on the number of proposed redundancies.

Consult with trade union representatives or elected employee representatives - or with staff directly if there are none.

Provide information to representatives or staff about the planned redundancies, giving representatives or staff enough time to consider them.

Respond to any requests for further information.

Give any affected staff termination notices showing the agreed leaving date.

Issue redundancy notices once the consultation is complete.

Advance notification of redundancies

It is a legal requirement to notify the Redundancy Payments Service (RPS) using an HR1-form (Advance Notification of Redundancies form) if you plan to make 20 or more redundancies in any 90-day period.

For 20 to 99 – at least 30 days’ notice must be given before the first redundancy

100 or more – at least 45 days’ notice must be given before the first redundancy

Tony Groom is a partner in K2 Business Partners, which invests in companies that manufacture and supply house building and construction products and services; IT & technology service providers; database, branded and intellectual property businesses; and industrial manufacturers. K2 invests its time and expertise in return for equity or success fees to ensure it has a stake in the success of its involvement in your Company.

Tony’s expertise is in helping directors and shareholders resolve their company’s immediate financial problems while at the same time developing a strategy for future growth; he sees the big picture but also deals with the minutiae. He has considerable experience of saving business that other advisers think are too far gone.