The Redundancy Process - Costs and Alternative Solutions

The Current Pandemic has left many business owners in a difficult position. Many find themselves having to cut costs and often this can mean having to make some employees redundant. However, the costs for a redundancy process isn’t free and there are several costs you must consider. There are also a number of alternative solutions that a business should consider.

The Costs

Redundancy Pay

Employees with a minimum of two years experience working under an employer should receive redundancy pay that equates to roughly 1 and a half weeks worth of pay for each year of service carried out. However, it is important to note that the amount of pay here is dependent on the employees age.

Enhanced Contractual Redundancy Pay

In addition to redundancy pay, many workers may be receive enhanced contractual redundancy pay. Payments here can be confusing as enhanced redundancy can transfer with employees from previously carried out jobs under TUPE (The Transfer of Undertakings Protection of Employment). Careful documentation of redundancies is essential here for employers undertaking redundancy processes.

Notice Pay

Employers who serve a company for even longer periods of time, get longer notice periods before redundancy. For example, a worker who is with a company for 12 years or longer should receive 12 weeks notice. Statutory notice periods take precedence over contractual ones given in worker contracts. Where longer standing, senior employees have notice periods that exceed statutory maximums, it will take longer for costs saved to be shown.

In Lieu

In an attempt to enhance the speed of savings, an employer may also choose to pay in lieu of notice which will help savings appear quicker. However, doing so requires a considerable amount of money to fund the initial payout. Businesses in considerable financial trouble may not be able to afford this option.

Indirect Costs

An indirect cost that may occur as a result of redundancies can come from a lack of motivation amongst staff from seeing their coworkers have to leave the company. They may also lack motivation in fear that they will soon be subject to the same fate. This lack of motivation may serve as a catalyst towards poor performance which can ultimately result in an economic downturn. In addition, where work forces are cut shorter, especially in instances of mass redundancies, a company’s performance might suffer from where they are temporarily short of staff.

Legal Costs

It is important for any employer to have a clear and fair redundancy process. Failure to carry out redundancies in a proper manner can lead to upset former employees claiming an unfair dismissal. If unfair dismissal claims go to an employment tribunal, the costs will be considerable whether or not the employer wins the case. Furthermore, in most employment tribunal cases it is rare that an employer will receive compensation any for money lost in the process.

Alternative Options

There are a range of other ways in which a business can cut costs other than through redundancy processes. Not all of which are pretty, however, and business owners should take considerable time to review their options.

Salary Cuts

One option, although not very desirable, may be to implement salary cuts or removing/reducing employee benefits. However, like we mentioned above, taking action like this can have adverse effects on workers such as causing a lack of motivation which can lead to further issues within a company.

Reviewing Balance Sheets and Partnerships

Before taking such drastic measures such as redundancies and pay cuts, employers may want to consider analysing their balance sheets first. There may be other costs unrelated to worker payments that one could reduce.

Companies might want to review their external contracts such as for those who are leasing. Here, a business may be able to seek out legal advice for renegotiation of rent. It may also be possible in some cases to negotiate a temporary deferral. Asset based lending may also be an option where company assets such as stock and machinery are in current use.

Summary

In summary, there are several options available instead of redundancy for businesses who need to cut costs. However, where no other option is available, business owners should take caution when undergoing redundancy processes, bearing in mind the adverse effects it may have on a workforce as well as the potential risks of legal action if processes are not carried out with a clear and fair process.

For more information regarding redundancies and for HR advice and support, contact us.

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The Redundancy Process – Costs and Alternative Solutions