*Updates as of 3rd August 2020*

  1. The Job Retention Scheme changes this month with employers having to stand the employers pension and employers national insurance contributions. Please see the comparison attached.
  2. Don’t forget your account manager will need the Usual Hours if you flexibly furlough an employee. Guidance from my previous email attached

Redundancy procedures

We have had some questions regarding redundancy.

Outline

Make a plan and consider how you might be able to avoid compulsory redundancies. ACAS suggests alternatives, such as offering voluntary redundancies, flexible working, ceasing recruitment and upskilling employees to fill other roles. Furlough was designed specifically to support this by funding a period of lay off to support longer term employment.

The need for collective consultation is triggered where 20 or more redundancies, at one establishment over a period of 90 days are expected. In this case the employer has a 30 day period to begin consultation with staff representatives or an appropriate trade union.

Notice of redundancy

Notice periods are subject to statutory limits based on length of service:

1 month – 2 years = minimum notice is 1 week

2 years – 12 years = 1 week for each year of service to a maximum of 12 weeks

Notice can only be given once consultation is concluded.

Face to face communication is considered best practice, albeit during the Covid-19 outbreak the employer will need to have adapted processes to allow for consultation which may make use of virtual communication channels. In any event, written confirmation must be given to the employee that includes:

  1. The notice period and leaving date
  2. How much redundancy pay is due and how the redundancy pay was calculated
  3. Details of other pay due to them – eg holiday pay, outstanding pay for hours worked etc
  4. When and how they will be paid, which must be when they leave or soon after
  5. Details of appeal process

Pay levels and limits

Redundancy pay can be made up from a contractual entitlement but there is a statutory minimum which is current set as a weekly maximum of £538 to a total maximum payment of £16,140 where an employee has completed two full years of service.

  1. Half a week’s pay for each full year of service – aged under 22
  2. One week’s pay for each full year of service – aged 22 – 40
  3. One and a half week’s pay for each full year of service – 41 or over

This is capped at a maximum of 20 complete years of service.

Where an employee has pay that varies with each pay period, use the previous 12 weeks to calculate the average pay to use. If during the 12 weeks the employee has not worked (eg taken one weeks leave), count back one further week until you have 12 working weeks.

The employment contract may be more generous, but this outlines the statutory minimum that an employee must be paid.

Example

Dale is 32 and has a normal weekly gross pay of £650, he has worked for his employer for 15 years and 2 months and he was given notice of his redundancy on 20 June 2020.

His redundancy pay is calculated as follows:

17 – 21            0.5 week x 5 = 2.5 weeks

22 – 32            1 week x 10 = 10 weeks

Total week’s pay due 12.5

The cap of £538 applies which when multiplied by 12.5 provides Dale with a statutory redundancy payment of £6,725.

Dale’s employer must provide a written statement of how the pay was calculated.

Redundancy pay and class 1A National Insurance Contributions

Redundancy payments that are being made as a genuine compensation of loss of office below the limit of £30,000 are not subject to PAYE income tax or Class 1 National Insurance Contributions (NICs).

In the event the payment exceeds this amount, the balance is subject to PAYE income tax and the employer will be subject to 13.8% payment on the balance for Class 1A NICs.

Since April 2020 Class 1A NICs are processed in real time and paid alongside usual payroll remittances where they become due for termination payments and sporting testimonial payments.

Employee rights during furlough

Whilst on a period of furlough, all employees continue to retain their same work rights that include the protection against unfair dismissal and the right to redundancy payments.

New law to ensure furloughed employees receive full redundancy payments

The Government has brought in a law to ensure furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced furlough rate.

Furloughed employees who are then made redundant will receive redundancy pay based on their normal wage, under new laws brought in on Thursday 30 July.

Throughout the pandemic, the government has urged businesses to do right by their employees and pay those being made redundant based on their normal wage, rather than their furlough pay, which is often less. The majority of businesses have done so, however, there are a minority who have not.

Employees with more than 2 years’ continuous service who are made redundant are usually entitled to a statutory redundancy payment that is based on length of service, age and pay, up to a statutory maximum.

These changes will also apply to Statutory Notice Pay, which is where employees must be given a notice period before their employment ends, varying from at least one week’s notice up to 12 weeks’ notice, depending on how long they have worked for their employer. During this notice period, employees must be paid.

Other changes coming into force will ensure basic awards for unfair dismissal cases are based on full pay rather than wages under the CJRS.

Guidance

This is an area where legal advice is often a necessity, due to the wealth of legislation and case law that exists. Guidance is available from ACAS and on gov.uk however if in any doubt then this is an area where seeking legal advice is wise and The Law Society offer a ‘find a solicitor’ free service.

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David Hughes
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