Rishi Sunak’s Coronavirus Job Retention Scheme has been designed to minimise the number of redundancies over the next few months. However, despite the measures put in place, many will still sadly lose their jobs. In this article, we take a look at the correct procedures to follow when turning a period of furloughed leave into a redundancy.
What happens after furlough ends?
According to a survey conducted in April, 70% of private UK companies had furloughed staff already, affecting some 8.4 million workers. With many companies facing an uncertain future, there are bound to be difficult decisions regarding what to do when employees are due to return to work.
At the moment, companies are faced with four different options:
- They can decide to extend an employee’s furloughed leave.
- They can arrange for an employee to return to work on reduced hours.
- The employee returns to work on a full-time basis.
- They can make the furloughed employee redundant.
Given the current situation, it is, unfortunately, the last of these points that many companies will choose to do. However, when doing so, they must be sure to respect all of the complex rules and regulations that govern redundancies.
Turning furloughed leave into a redundancy
Turning furloughed leave to redundancy is not the ideal outcome and is not what the Coronavirus Job Retention Scheme was designed for. Nevertheless, the current situation has backed many employers into a corner.
As a result, a significant number of those who have been furloughed will inevitably end up out of work and, while these may be unprecedented times, employment law continues to apply.
Therefore, it is important that employers follow the correct procedures when making an employee redundant, particularly as there is likely to be increased scrutiny of the way they handle the process.
The correct redundancy procedures.
Furlough and redundancy
1. Before contacting the affected employee(s), employers must first notify the Redundancy Payment Service (RPS); this must be done before the consultation starts.
2. Employers must then contact the affected employee(s). For large-scale redundancies, trade union representatives or elected employee representatives can be contacted instead. Thorough and concise information will need to be provided to the affected employee(s) about the planned redundancy.
3. If the affected employee(s) has any requests, the employer should respond to them as quickly as possible.
4. The employer must provide clear guidance relating to the termination notice(s). The notice must display the leaving date that has been agreed upon by all parties.
5. The final stage in the process is to issue the redundancy notice(s). This should only be done once all of the above steps have been completed.
*The redundancy notice period can begin while an employee is on furlough; however, the employee will need to receive their pre-furlough salary for this period if they have statutory minimum notice rights. Up to 80% of this can be reclaimed from HMRC, but the remaining 20% will have to be covered by the employer. Employers are also NOT allowed to use furlough payments to cover redundancy payments.
On Thursday the 30th of June, the Government announced a new law designed to ensure that furloughed employees receive statutory redundancy pay based on their normal wages, rather than merely on their reduced furlough rate.
The law has been introduced so that those furloughed under the Coronavirus Job Retention Scheme are not left out of pocket if they are made redundant. The changes will also apply to Statutory Notice Pay and other entitlements.
Compulsory vs voluntary redundancy
If an employer does choose to make employees redundant after their furlough period is over, they will have to decide whether to offer voluntary or make compulsory redundancies.
What is compulsory redundancy?
When an employer makes an employee or employees redundant.
What is voluntary redundancy?
When an employer asks employees if they wish to be made redundant.
The redundancy itself is initiated by the employees, meaning that they can approach their employer to inform them they want to to be made redundant.
For employers, this can often be a difficult decision. Compulsory redundancy is generally a much tougher decision as it is solely the employer who is making the decision. It is for this reason that employers, particularly when making collective redundancies (20 or above), choose to propose voluntary redundancy.
Nevertheless, employers frequently misconstrue the terms of voluntary redundancy; just because an employee asks for it, does not mean that the employer has to accept it.
Given the current situation, HMRC is unlikely to be too impressed if a company chooses to proceed with only voluntary redundancies, as this would mean that there had been no selection process at all.
Regardless of whether it is the employer who is deciding who to make redundant, or if the employee has initiated it, companies are required to ensure that the process is run fairly and properly and is free of any bias.
Employers must be careful not to leave themselves open to criticism when making people redundant. Before making a final decision, factors such as skill, quality of work, prior attendance and disciplinary records should all be considered thoroughly.
What is a collective redundancy?
While redundancies are not altogether that uncommon, one of the consequences of coronavirus is likely to be the number of collective redundancies.
A collective redundancy is when an employer makes 20 or more people redundant within a 90-day period.
When an employer is making mass redundancies, they must follow "collective consultation” rules. These rules vary depending on the number of redundancies being made - e.g. if an employer is making between 20-99 redundancies, they must contact the RPS 30 days prior to the first redundancy taking effect.
If100or more employees are being made redundant, the employer must contact the RPS45 days before the first redundancy. The17th Marchis the latest a 45 day consultation period can start if making employees redundant on30th April 2021.
When making 19 or fewer redundancies, there is no minimum consultation period; however, employers still have to contact the RPS before making the first redundancy.
Employee furloughs in the PayFit app
As a cloud-based payroll provider, we have been able to support all of our clients who have been required to work remotely over the last few months.
Our product team has worked hard to create a section within the PayFit app that enables customers to easily administer any employee furloughs in their organisation.
What can the PayFit app do?
✅ Provide support on furloughing employees
✅ Automatically calculate the cost of furlough and the reclaimable employer contributions for NICs and pensions
✅ Provide a report for all pay related to furloughed leave
The PayFit app.
Interested in finding out more about how PayFit can help with your payroll processes? Why not book a demo with one of our payroll specialists today?