Many businesses are feeling the financial strain, and with increased costs to come such as higher employer National Insurance contributions in April some employers will be looking to cut costs where they can. This may lead to some businesses thinking about making redundancies. This raises an important question – what in law is a redundancy situation and does it encompass cost cutting?
Why does a business’s reasons for making redundancies matter?
One of the requirements for a safe redundancy is that a business has what is commonly known as a ‘genuine redundancy situation’- this is one of the reasons for making redundancies that is allowed in law. The risk of making an employee redundant absent one of these reasons is that an employee with two years’ service or more could complain to an employment tribunal that they have been unfairly dismissed.
Costs and ‘a genuine redundancy situation’
Unfortunately for businesses that are feeling the pinch costs / cost savings alone aren’t a genuine redundancy situation – something more is required. When we speak to employers who initially tell us that they need to make redundancies for costs reasons, once we get into the nitty gritty of the situation it often turns out that there is a genuine redundancy situation – usually because of the causes, effects or future plans of the business, sometimes connected to or influenced by the costs issue.
To explain further we need to take a look at what is a ‘redundancy situation’. In brief outline, this is where:
- An employer is shutting down the business entirely, so that the business disappears.
- An employer is shutting down the business in the place where the employee works, so that the place of work disappears.
- An employer is eliminating the work the employee does, either generally or in the place of work, so that the job disappears in its entirety.
- The number of people doing that job is to be reduced but not eliminated, so that fewer people are required in the job.
As you can see cost saving doesn’t feature. However, as mentioned above that doesn’t automatically mean that an employer that needs to save costs can’t also have a redundancy situation. For example:
- A business that has experienced significant rises in the cost of raw materials may be looking at ways to save costs in other areas, on investigation they discover that they can improve productivity and efficiency by introducing further mechanisation into the production process. They have invested in new equipment which will be introduced shortly. This will reduce the number of production operatives the business needs by half.
- A business is very worried about being able to afford increasing costs, consequently they are considering taking the difficult decision to scale back the expansion of the business. They will no longer need two specialist technical roles as this work will cease and they need to reduce the management team by one to reflect the amount of work available at this level going forwards.
- Increasing costs mean that two branches of an employer’s restaurant chain are no longer profitable. They are proposing to close these and as such need to make redundancies.
It’s not always easy for a business to identify whether they have a redundancy situation so it’s vital to seek advice on the individual facts of your business’s situation before taking any action.
How to make redundancies
If your businesses hasn’t needed to make redundancies before or it’s been a while since you were last involved in a redundancy process it’s important to bear in mind that in outline you will usually need to:
- Prepare a redundancy business case
- Identify the appropriate selection pool. This is the group of employees that are at risk of being made redundant. Depending on the business reasons, an employer may be proposing to make all of those in the pool redundant, or only some of them
- Warn and meaningfully consult employees who may be affected by the proposed redundancies before any decision to dismiss is made
- Fairly select who will be retained from the selection pool (unless the business is proposing to make all employees in the selection pool redundant). Selection is often done using a skills matrix
- Look for alternative employment – a failure to do so can make a redundancy dismissal unfair
- Pay redundancy pay to employees who are entitled to it
It’s important to note that if you are proposing to make 20 or more redundancies within a period of 90 days or less there are additional collective consultation obligations that will need to be met.
What to do if you need to take action in your business
If at any point you are considering making redundancies in your business, you should seek advice from Kingfisher Professional Services Ltd on your circumstances before taking action. We are here to help and can provide you with the employer focussed advice you need to make informed decisions for your business.