Administration, Companies, CVL, Insolvency, Redundancy|

Dealing with Redundancies

The Coronavirus pandemic has had a detrimental impact on many businesses and individuals due to business closures and consequent job losses.  Now, with the Coronavirus Job Retention Scheme due to end in September 2021, businesses which have used the scheme will need to consider whether redundancies may need to be made.

Starting the Redundancy Process

Redundancy is appropriate where the role itself is no longer needed and will be applicable if a business is closing down.  You must follow a fair redundancy process and this must include collectively consulting your staff if more than 20 are at risk of redundancy.

As soon as possible, you should communicate with the employees.  Ideally, you should hold a meeting (remotely if necessary) with all affected employees to explain why redundancies are necessary, and outline what will happen next. 

If your business is closing down and you have instructed an Insolvency Practitioner to assist you with the process, they will attend and deal with any questions from employees.  This can make the process far less daunting for the business owners and will also provide clarity to the employees about the process and what they will be entitled to. 

How will the cost of redundancies be met?

Employees who meet the qualifying criteria for redundancy under the Employment Rights Act 1996 are entitled to receive statutory redundancy payments.  Where a company is insolvent, the Redundancy Payments Service (RPS) will pay claims direct to the redundant employees, up to certain limits, and will then take the employees place as a creditor in the insolvency.

This means that your employees receive their statutory entitlements as quickly as possible, even if the company does not have sufficient funds to meet the cost.  The various payments which an employee can submit a claim for, are:

Redundancy Pay

An employee is usually entitled to statutory redundancy pay if they have been continuously employed for two years or more.  Statutory redundancy pay is calculated as:

  • Half a week’s pay for each full year you were under 22;
  • One week’s pay for each full year you were 22 or older, but under 41;
  • One and a half week’s pay for each full year you were 41 or older.

Length of service is limited to 20 years and the maximum amount per week is £538. Your likely redundancy entitlement can be calculated here.

Payment in Lieu of Notice

An employer must give adequate notice before their employment ends:

  • at least one week’s notice if employed between one month and 2 years;
  • one week’s notice for each year if employed between 2 and 12 years;
  • 12 weeks’ notice if employed for 12 years or more.

Unpaid Wages and Accrued Holiday Pay

Employees are entitled to receive unpaid wages and accrued holiday pay, and other monies owed by the employer – such as a contractual bonus, overtime or commissions.  Arrears of wages are limited to 8 weeks, at £538 per week. Claims submitted for holiday entitlement which has been accrued but not taken (or holidays taken but not paid) are limited to 6 weeks, capped at the same level.

New regulations, The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020, provide furloughed employees whose employment is terminated with added protection, by requiring that the calculation of their statutory entitlements is based on their normal pay rather than on their furloughed pay.

At Keystone Recovery we understand that closing your business and making redundancies is stressful, and we aim to make the process run as smoothly as possible. If you are worried your company will struggle to survive once the furlough scheme comes to an end, it is important that you seek expert advice from a licensed insolvency practitioner. Contact us for a no obligation chat about options available.

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