It’s a worrying time for both employers and employees.
Business costs and household bills are seeing firms and their workforce tightening their belts and preparing for some tough financial times ahead.
This week, it was the turn of furniture company Made.com to reach breaking point, with bosses calling in administrators, a move which is expected to result in 500 job losses, despite the company’s assets being purchased by Next.
This followed on from recent news that Twitter had axed half of its employees as new owner Elon Musk tries to stem heavy financial losses.
Similarly, Meta announced this week that it would axe 11,000 roles, just slightly more than the 10,000 cuts Royal Mail recently announced, sparking outrage among workers and union heads.
But it’s not just big firms that are bracing for the worst.
As inflation continues to surge and worries around an incoming recession grow, SMEs are starting to brace for widespread redundancies, research from Citation has found.
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Despite it being a decision most employers don’t take lightly, the employment expert, which specialises in SME advice, saw a 184% increase from June to July 2022 in the number of inbound queries from employers looking for advice around redundancies.
As financial pressures continue to build, and more businesses look at the tough decisions they may be required to make to navigate the uncertain economic climate, Citation is warning that firms need to consider all options before opting to make redundancies.
One of these areas that businesses must look at before making any decisions is how much staff redundancy will cost.
There are many factors to consider when costing this up, such as an individual employee’s length of service, age and salary, and this can lead to confusion amongst business owners.
Gill McAteer, director of employment law at Citation, said: “These are very challenging times for businesses, with inflation of goods and services, including the energy crisis and economic uncertainty causing worries for firms of all sizes, but in particular SMEs.”
The Office of National Statistics (ONS) recently found that more than a quarter (26%) of UK businesses cited “inflation of goods and services prices” as the main concern for their business, and with inflation likely to rise further, this statistic is likely to move the same way.”
Gill continued: “Although it is not taken lightly by businesses, as they look to build resilience, redundancy is a common measure used. Whilst it can be an effective way to cut costs, there are other options out there that should be considered first.”
“Not only do business leaders owe it to their workforce to look at all options before redundancy, it can often end up costing them more in redundancy packages, than if they looked at other potential options such as a temporary change in working hours, reduced hours or changes to terms and conditions.”
What should the process look like?
Some firms this year have made a calamity of the redundancy process. Who can forget the scandal that erupted when P&O Ferries told 800 staff, via a pre-recorded video message, that they were being terminated immediately back in March 2022.
And news of lay offs at a social media marketing agency in August brought us one of the most self-indulgent posts LinkedIn has ever seen, the crying CEO.
Andrew Rhodes, an employment barrister at No5 Barristers’ Chambers has explained everything employers need to know if faced with the possibility of making staff redundant.
He said: “If you are put in the position, as an employer, where you have to let some of your workers go, there are measures that are legally required to take place to ensure the process is fair. This must happen no matter the reason, including financial difficulties or simply no longer requiring the role.
“When you have selected the positions that need to be reduced, you are required to inform those potentially affected. As well as informing employees, you must also contact their union. If your workers do not have one, then you can skip this step. You are required to consult with affected employees throughout the redundancy process and take on board any suggestions they may have for how to avoid their roles being made redundant.
“Once all of the necessary parties have been informed, you will then be required to decide the criteria by which employees will be measured to see if they will be kept on or made redundant. This could include assessing workers’ standards of work, experience or qualifications. You could ask employees to sit a test or attend an interview during this process.
“Once this has been set out and workers have been informed, you cannot deviate from it. If an ex-employee has evidence that an employer altered the redundancy selection criteria during the process, they can take them to the employment tribunal and claim unfair dismissal. This could result in the workplace being forced to offer the role back to the worker or having to pay a larger severance fee.
“The criteria set out by employers has to be fair and avoid any potential discrimination towards people with the nine protected characteristics. This includes race, sex, disability, pregnancy and maternity. The criteria must be fair, objective and measurable to prevent any discrimination. If an employee has evidence that the criteria was biased against one of the nine characteristics, they can take their ex-employer to the tribunal.
“Before you can make someone redundant, you are required to make reasonable efforts to obtain other employment within the business, which might include making them aware of other vacancies that they have the qualifications to fulfil. Once you have completed all of these steps, you can safely proceed with making staff redundant.
“When letting a worker go, you are legally required to give them a redundancy payment in line with their salary and length of employment. The amount is set out in law and depends on the employee’s age and how long they’ve been in their job. It is best to seek legal advice to discuss the correct amount. If a worker believes that they haven’t their full redundancy award, they can take their employer to the employment tribunal.
“If you do not follow one of the required steps, you risk lengthy and expensive claims in which you may be ordered to pay a large sum of money or be forced to offer the claimant their job back. It is best to seek legal advice if you are unsure on the process surrounding redundancy.”
Chris Phillips, Employment Law Specialist at Thornton, previously told HR Grapevine that it’s important that HR is aware of the psychological toll that redundancy can have on all employees. He stated that constant communication is the only way to mitigate negative effects on mental wellbeing.
“We’ve seen the Office for National Statistics confirm that the UK is now officially in recession following a 20% shrink in the economy in the second quarter of this year. These figures are frightening for an employee working remotely...” Phillips said.
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He added: “Imagine the anxiety felt and the impact that could have on the mental health of those workers if they are also not properly supported or in regular, meaningful contact with their colleagues and managers.”
On its website, the Chartered Management Institute (CMI) offers insight from Paul Holcroft, Associate Director at Croner, who advises firms on their HR policies – part of which covers redundancy packages. He said that honesty and clarity are the critical components of successful support.
Similarly, official guidance from the CIPD explained that ‘redundancy should be a last resort’.
“It can be one of the most distressing events an employee can experience. It requires sensitive handling by the employer to ensure fair treatment of redundant employees as well as the productivity and morale of the remaining workforce.