PAYING FOR REDUNDANCY

Hopefully, as the green shoots of recovery gradually appear during 2010, British employers will need to make fewer redundancies and avoid the trauma and resource constraints that can result. In this article, Tim Holden MCIPD, owner of Fluid, a specialist Human Resources and training consultancy explains about redundancy, associated payments and how to avoid the need for them.

WHEN IS REDUNDANCY GENUINE?
The Chartered Institute of Personnel and Development (CIPD) define a genuine redundancy as follows: When either there has been or is going to be a cessation of business, a cessation of business at the employee’s site or a reduction or cessation of work.

The Advisory, Conciliation and Arbitration Service (ACAS) states that employees are entitled to redundancy payments if they are dismissed due to one of the following:

• The employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was so employed;
• The employer has ceased, or intends to cease, to carry on the business in the place where the employee was so employed ;
• The requirements of the business for employees to carry out work of a particular kind has ceased or diminished or are expected to cease or diminish;
• The requirements of the business for the employees to carry out work of a particular kind, in the place where they were so employed, has ceased or diminished or are expected to cease or diminish.

SELECTION
Adopting a LIFO (last in first out) policy is now counter to age discrimination legislation. Instead, at Fluid we recommend an objective assessment of information such as attendance records, disciplinary history, performance against objectives and skills/qualifications. In our experience tribunals are keen on procedures based on a points system which score each employee against relevant criteria, and care is needed when choosing or applying the criteria to avoid factors which may be discriminatory. Such unfairness can be indirect or overt such as selecting part-timers rather than full-timers where a high proportion of women are affected.

LEGALLY SPEAKING
The main legislation regulating redundancy is:

• The Trade Union and Labour Relations (Consolidation) Act 1992
• The Collective Redundancies and Transfer of Undertakings (Protection of Employment) Regulations 1995 (SI 1995/2587)
• The Employment Rights Act 1996
• The Collective Redundancies and the Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1999 (SI 1999/1925)
• The Collective Redundancies (Amendment) Regulations 2006 (SI 2006/2387).

WHAT IS THE REAL COST?
For all you mathematicians, the CIPD last year devised the following formula to calculate the real cost of redundancy: (n ×R) + (x ×H) + (x ×T) + ny(H + T) + Wz(P - n)

Where:
n = number of people made redundant
R = redundancy payments
x = number of people subsequently hired
H = hiring costs
T = induction/training cost
y = percentage quitting post redundancy
W= average monthly staff salary
z = percentage reduction in output per worker caused by lower morale
P = number of people employed prior to redundancies

The precise cost of redundancy for an individual employer will of course vary depending on the specific circumstances. CIPD research determined that the average direct financial cost to employers of redundancy per worker being made redundant in 2008/9 is estimated as between £10,575 (where redundant workers are not subsequently replaced) and £15,242 (where redundant workers are subsequently replaced by new hires). If replacement hires need to be inducted and provided with training, the cost rises to £16,375.

Redundancy payments up to £30,000 in the course of working for any one company are normally free of tax, whilst anything above £30,000 will be taxed at the highest rate.

Last month, in the Swindon Advertiser (December was a quiet month!), it was reported that KPMG had identified an overpayment by Wiltshire Council of £33,000, with eight members of staff overpaid and six underpaid out of a total of 60 individuals and a total payout of £5.2M. Chief Executive Keith Robinson was quoted as saying “It was purely down to arithmetic - we made a mistake and we have written to apologise”. Council solicitor Ian Gibbons said the letters would be polite but would be followed by legal action if the money is not repaid.

With this in mind we recommend you spend time crunching the numbers to make sure it is fair for both parties involved!

AVOIDING REDUNDANCIES
Since the recession first bit in late 2008, at Fluid we have designed and delivered a number of projects to avoid the need for redundancies. These have varied from switching full time workers to four-day weeks at 80% of their original pay, ending overtime, deferring the start date for new graduates and developing sabbatical programmes options. Other options include natural wastage, early retirement, a recruitment freeze and retraining/redeployment.

Unscrupulous employers have been sacking employees for gross misconduct to avoid incurring redundancy pay-outs. However, they run the risk those employees who believe that fair dismissal procedures have not been followed will make a claim to an Employment Tribunal.

A growing area of work for Fluid during 2009 has been addressing the concept of ‘survivor syndrome’, working with the ‘survivors’ left behind after redundancy, who often having to work harder for less reward. Such individuals often experience a pay cut or pay freeze, a reduction in their budget for learning & development and fewer opportunities for career advancement as the organisation contracts in size. Traditional outplacement services help workers made redundant secure alternative positions, yet top-performers who were never in danger are often overlooked. At Fluid, we have developed a national reputation for creative and cost-effective solutions to engage survivors, which can be essential for the long-term survival of the organisation.

CALCULATING REDUNDANCY PAYMENTS
The amount payable to employees who are being made redundant is based on the number of compete years of continuous service, age and weekly pay. With effect from October 2009 the maximum sum that can be used for weekly pay is £380, and the maximum length of service is 20 years. In summary, this equates to:

• 0.5 weeks pay for each full year of service where age during the year is less than 22 years
• 1.0 weeks pay for each full year of service where age during the year is 22 years or above, but less than 41 years
• 1.5 weeks pay for each full year of service where age during the year is 41+

At Fluid, we recommend our clients visit the website for the UK Department for Business, Innovation and Skills, specifically: 
http://www.berr.gov.uk/whatwedo/employment/employment-legislation/employment-guidance/page33157.html

WHO QUALIFIES?

Employees will qualify where they have been continuously employed in the job for at least two years, the dismissal was for redundancy, and they are not covered by any of a number of specific exclusions and did not unreasonably refuse an offer of suitable alternative employment.

It is worth visiting the ACAS website www.acas.org.uk. They point out that redundancy pay is also due when a fixed-term contract of two years or more expires and is not renewed because of redundancy. In addition, they confirm that redundancy pay can be claimed from employers if a temporary lay-off takes place for more than four weeks in a row (or six non-consecutive weeks in a 13 week period). Claims from employees should be made to the employer in writing, and this must be done within four weeks of the last non-working day in the four or six week period.

Through 2009, many employers have been declared insolvent or financially have been unable to meet claims for redundancy pay. Employees made redundant under these circumstances should formally write to the employer asking for redundancy pay but should this be refused, form RP1 should be completed and sent to the Insolvency Service (www.insolvency.gov.uk).

Specific exclusions to qualification for redundancy payment include:

• Members of the armed forces
• House of Lords and House of Commons staff
• Some apprentices and employees with fixed-term contracts
• Domestic servants working in private homes who are members of the employer’s immediate close family
• Share fishermen paid only by a share in the proceeds of the catch
• Crown servants or employees in a public office
• Employees of the government of an overseas territory

WHAT IS CONSULTATION?
Where an employer is making 20 or more employees redundant in one establishment within a 90 day period, this is deemed to be a collective redundancy. Employers considering making collective redundancies have a duty to consult with the representatives of employees that could be affected. Where an employer fails to consult the representatives then a claim may be made to a Tribunal for a protective award (a monetary award of up to 90 days pay). Collective redundancies generally occur when there are site closures such as the Corus facility in Redcar or where work is reorganised.

Should 19 or fewer employees get made redundant in one establishment this is deemed individual redundancies and certain procedures must still be followed. Employees should be selected fairly, consulted and warned about the redundancies. Reasonable steps should be taken to redeploy affected employees, redundancy payments that are due must be paid, the correct amount of notice should be given and alternatives to redundancy should be explored.

LOOKING FORWARD
2009 has been an awful year for redundancies, yet this year there will still be employers who will be faced with no alternative. Dealing with employees fairly and equitably, whilst keeping them informed, will minimise the chance of tarnishing the employer brand and maximising the opportunity to employ such people again in the future. As the jobs market slowly picks up, few organisations want to alienate their travel-to-work community and be forced to relocate new employees because their reputation is in tatters. Even where no external hiring is planned to replace the individuals made redundant, they could be customers of the future who would buy goods and services, therefore treat them how you would want to be treated if you were in their position!

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