Last resort redundancies: plan now, or pay more later?

Are redundancies an increasingly likely conclusion to the Covid-19 crisis for your business? Lucy Twomey, HR and Legal Adviser at Make UK, warns employers faced with the ‘last resort’ of redundancies that they have no time to lose when it comes to project planning.

Why plan now?

Time is running out for financial support under the Government’s furlough scheme and, for some employers, the clock may also be ticking on collective redundancy consultation with affected employees. If employers don’t factor this in and plan ahead, they could incur additional costs and, in some cases, financial penalties.

Reduction in furlough support

Currently, the Coronavirus Job Retention Scheme or ‘furlough scheme’ provides employers with a grant of up to 80% of employees’ regular pay (capped at £2,500 per month) while employees are not working for their employer. This support will reduce to 70% in September and 60% in October until scheme closure (expected to be 31 October), but employers will still have to pay their employees at the 80% rate.

If the reduction in furlough support means that redundancies are likely, employers should start planning now. Delaying the redundancy process until expiry of the furlough scheme could result in additional costs, which employers can ill afford.

Redundancy during furlough

Recent confusion over the compatibility of the furlough scheme’s purpose to ‘continue the employment’ of furloughed employees with an employer’s ability to make redundancies has been clarified. Government guidance now makes clear that employers are not prevented from making genuine redundancies while still claiming under the scheme.

Employers can claim for notice pay where employees remain employed for their notice period, but they cannot claim under the scheme for redundancy payments. However, in some cases (depending on employees’ hours and working arrangements) the fact that an employee has been on furlough may impact the calculation of both redundancy and notice pay.

Collective consultation during furlough

If an employer’s plans have reached the stage where 20 or more redundancies are ‘proposed’ at one establishment within a 90-day period, they must consult with a trade union or employee representatives ‘in good time’ and for at least 30 days (or 45 days if 100 or more redundancies are proposed).

Government guidance recognises that collective consultation can take place during furlough. Delaying consultation until after the scheme expires could add several weeks to the wage bill. If consultation is too short, or otherwise defective, this could result in claims for unfair dismissal and ‘protective awards’ of up to 90 days’ pay (although a limited ‘special circumstances’ defence may apply in extreme situations).

Next steps by August (at the latest)

If redundancies look increasingly likely, employers should start considering next steps now to ensure that their plans are as cost-effective as possible. Counting backwards from the expiry of the furlough scheme, allowing for collective consultation (if required) and employees’ average notice periods, takes most employers to August. Employers must start planning immediately if they are to make the necessary cost-savings to keep their businesses alive.

How we can help

Our experienced legal and HR consultancy experts will give you the confidence to plan and project manage a redundancy process effectively, saving you time and money. Join our experts in a two-hour live webinar Redundancies in the Context of Covid-19 on the 5 August, as they explore typical steps in a redundancy process and how it may be affected by the pandemic, as well as tackling the various pitfalls and legal risks that can arise.