Furlough to redundancy — what are the correct procedures to follow?

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The Coronavirus Job Retention Scheme (CJRS) was introduced with the intention of minimising the number of redundancies during the COVID-19 pandemic. However, despite the measures put in place, many people have and unfortunately will still 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 2020, 70% of private UK companies had furloughed staff affecting some 8.4 million workers. With many companies still facing an uncertain future, this figure is likely to increase over the next few months.

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.

Sadly, many companies will favour the last of these points. 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

No matter the situation, employment law will always continue to apply. In fact, during the pandemic, employers have been under increased scrutiny over the way redundancy procedures are handled. Consequently, it is essential that employers, now more than ever, follow the correct practices at all times.

The correct redundancy procedures.

The correct redundancy procedures.

Furlough and redundancy

1. Before contacting the affected employee, 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. 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 about the planned redundancy.

3. If the affected employee 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. 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. This should only be done once all of the above steps have been completed.

From 1 December 2020, notice periods can no longer be claimed using the CRJS scheme. This means that an employee’s furlough period must end the day before their notice period starts. Employers will therefore be liable for 100% of the cost of the employee’s notice period. Employers are also not allowed to use furlough payments to cover redundancy payments.

Government advice on making staff redundant

Read more about the correct procedures when making someone redundant.

On 30 June 2020, a new law was introduced with the intention of ensuring that furloughed employees receive statutory redundancy pay based on their normal wages rather than merely on their reduced furlough rate.

The introduction of the law means that furloughed employees will not be left out of pocket if they are made redundant. The changes also apply to Statutory Notice Pay and other entitlements.

Compulsory vs voluntary redundancy

If an employer does choose to make an employee redundant after their furlough period is over, they will have to decide whether to offer a voluntary redundancy or make it compulsory.

What is the different between compulsory and voluntary redundancy?

Compulsory redundancy

When an employer makes an employee redundant.

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 wish to be made redundant.

As it is the employer who is solely responsible for making the decision, compulsory redundancies are seen to be trickier to handle. As a result, employers will – particularly when making collective redundancies (20 or above) – choose to propose voluntary redundancy.

However, the terms of voluntary redundancy are frequently misinterpreted by employers. Although an employee may ask to be made redundant, an employer is under no obligation to accept it.

Given the 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 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 the pandemic 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.

If 100 or more employees are being made redundant, the employer must contact the RPS 45 days before the first redundancy. The 17 March is the latest a 45 day consultation period can start if making employees redundant on 30 April 30 2021.

Collective redundancies

Read ACAS' guide on how to handle collective redundancies.

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 our clients who have been required to work remotely over the last few months.

Our product team has worked hard to create a section in the PayFit app that enables customers to easily administer any employee furloughs in their organisation.

Coronavirus: PayFit app updates

At PayFit, we like to stay on top of things! This is why we've updated our app in accordance with all the latest coronavirus-related legislation.

What can the PayFit app do?

✅ Provide support on furloughing employees

✅ Automatically calculate the cost of furlough

✅ Provide a report for all pay related to furloughed leave

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?

PayFit disclaimer

The information contained in this document is purely informative. It is not a substitute for legal advice from a legal professional.

PayFit does not guarantee the accuracy or completeness of this information and therefore cannot be held liable for any damages arising from your reading or use of this information. Remember to check the date of the last update.

PayFit blog author

PayFit blog author

PayFit

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