Talk about anything you want!
The small tech company I work for (<15 staff) is starting redundancy talks next week. Two other people are in the same role as I am, and one of those three positions is to be made redundant. No one is a member of any union. 3 month notice period, I think/hope.
After informal talks with a manager this week I’ve found out that they are looking at redundancy instead of furlough as they are convinced the longer term outlook is poor for the company (not closing, just slowing trade). I agree that trade will be slowing and that in the long term redundancy may be necessary. Because of that they are going straight to redundancy now, instead of furlough and then redundancy in the future if it is still deemed necessary at that stage. To set the scene, there is plenty of cash in the bank, the company has been looking to buy land and build on it to grow and is part way though that initial process, and an investment of c.£500k on a tool has been recently talked about. I imagine that’s all on hold now, but it gives an indication of how well the company has been doing up until now.
They have two other staff members furloughed already. These people are probably more vital as there is only one of them in each of their roles, compared to the three people who do my role.
The point of the government’s job rentention scheme is in the name really, but is summarised here: It is designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy.
To me it seems incredibly short sighted (and in no way looking after their employees or the UK economy) to start redundancy proceedings now without first going through the furlough scheme for as long as it may last for. Currently until 31st May but may be extended. I know the company doesn’t have to furlough anyone, but they are encouraged to. I want to encourage them a little bit more.
When I asked why furlough prior to redundancy wasn’t being used, I was told it was because there are still hidden costs the company would have to pay and it would obviosuly want to avoid these. Does anyone know what these hidden costs might be? As far as I understand it:
– I’d get 80% of my gross salary. I wouldn’t expect it to be topped up 20%. Out of this 80% would come my NI payments and tax. No cost to the company there.
– The government cash payment to the company (starting at the end of this month, and backdated) also covers minimum autoenrolment pension contributions (based on the 80% salary), and employer NI contributions. The company is not liable for these payments. My pension contribution is currently greater than the autoenrolment minimum but I’d happily see it reduced to keep a job.
Can anyone point out what hidden costs I’ve missed, or suggest any cunning plans with which I can end up being furloughed for a couple of months prior to the 3 month redundancy notice period? Basically anything to extend the time in employment when it’s rather difficult to find new jobs. Thanks!
Well if trade is slowing and they then have too many people they may need to make people redundant.
you will have a better idea when they issue redundancy consultation.
not an easy one. Can you offer to work for 4 days a week if the other staff members agree? that is one solution.
Furloughing only works if you think a company is going to pick up to work levels prior to lockdown.
But surely if furloughing is essentially free for the company why not wait and see for 3 months. I will cut down on redundancy / recruitment costs if they’re wrong. It buys more time and information for the company.
The only reason I can see for redundancy is if they don’t have the financial resilience to pay the wages until the government payback arrives.
Personally if I expected a slow down in work after this and would have to let people go I would put them on Furlough but have a quiet word explaining the possible situation re letting them go later to give them the best chance of hanging on to a few quid and look for a new job. That is probably an illegal thing to do though.
I certainly wouldn’t make people redundant just in case, I would rather furlough and see what the situation is after, I’m probably going to be busier than ever but I suppose your employers know their own business best.
Unless you know the company finances intimately you can’t comment on how much cash they have, the expansion plans mean nothing either. They will have done a business plan and worked out the X amount of investment will pay back X amount of money over X period of time. If the numbers look good they might be borrowing heavily to finance the build and equipment.
It’s a shitty situation and I hope it works out for you.
You would still be acruing holiday pay entitlement whilst on furlough, so that would have to be paid by your employer if you walked (or were let go) at the end of the period.
Also as someone else said the government hadn’t yet provided any time scale for when companies will be paid the 80%! So for the March payroll (and maybe April and beyond) the actual cash that goes to you will be coming out of your employers account – and how long do they have the cashflow to keep that up for?
I can’t work out what might be the hidden costs they’re on about. But perhaps they’re just facing up to the inevitable need to cut staff after the lock-down is over and they reckon they can start your notice period very soon, send you on apparent garden leave for three months and then claim the cost through the furlough scheme.
“I’d get 80% of my gross salary. I wouldn’t expect it to be topped up 20%. Out of this 80% would come my NI payments and tax. No cost to the company there.”
the way I understand it is the government will pay 80% of the employees cost up to £2500 per month
ie if you cost the company £100 for wages, tax and ni then the government will pay £80 and the employer will pay £20
so it is not a no cost option.
There is no obligation for the employer to pay the 20%
Costs are just accrued leave and length of service (which could potentially affect a later redundancy payment), I think.
I suspect the op’s employer has just realised how tight their cash flow is and that they need to cut the wage bill, and is reacting to that now rather than thinking of the employee’s situation in particular. And maybe they really do need to, I don’t know.
The government will give your employer a grant to 80% of the cost of the employees salary and employment costs (pension contributions, NI etc), up to a limit of £2500. It is up to the employer if they decide to top up the additional 20% (or more than 20% if you earn over the £3000 per month threshold)
To The OP, these costs may include your notice period after the furlough ends (if your notice is 3 months then they will be able to put you on notice and then claim the furlough grant for your salary while on notice, if they were to furlough you and then make you redundant after the furlough scheme ends, they would then have to pay your salary during notice period out of their own pockets), accrued holiday pay which you will accrue during furlough and increased redundancy payments from increased length of service. There are also any employee benefits or benefit schemes you get which they may have to pay towards (company car, childcare voucher purchase schemes etc)
One question I would ask is if they are struggling for cash just now will they be able to afford any redundancy payment due to you just now. If not you may be able to talk them in to paying furloughing you for a period and then making you redundant later, meaning they don’t have to pay your redundancy payment during these difficult times and can pay it when they will have more business (albeit less business than before Corona)
Thanks (almost) everyone for your thoughts, they’re much appreciated.
As it’s the first meeting next week, I’ll be asking for a written statement informing me of the reasons for redundancy, including a list of the hidden costs they refer to. Not the numbers, just the items. I presumably am then allowed time to reflect on the meeting and that information and respond in writing. That’s my understanding anyway, it’s all new to me!
Can my employer choose to make me redundant rather than putting me on furlough?
Sadly yes. You cannot force your employer to put you on furlough, just as they cannot force you to accept furlough. Both parties need to agree.
If your employer makes you redundant when they could perfectly well have put you on furlough at no additional cost (meaning that you had agreed to cut down your pay to the 80% reimbursed by the government). In our view, you may have a good case to argue unfair dismissal (if you have 2 years of service, see our page on redundancy).
An employment tribunal will look at the employer’s resources at the time, but if they had no cashflow issue (or if you had agreed to delay receiving your salary because your employer did not have the funds to pay you for now), it seems that making you redundant when they could instead have put you on furlough could be unreasonable.
You may also have a discrimination argument if you think they’ve made you redundant (instead of keeping you furlough) because of your sex or other protected characteristic (and you do not need any minimum length of service for this).
I’m afraid it’s vanishingly unlikely that a redundancy in 2020 could be disqualified at a tribunal on the basis that any employer, let alone the OP’s, has no cash flow issues.
To the OP, I hope the situation is resolved to your satisfaction, and, if not, that you are well-placed as a tech worker to find new employment.
Hidden costs might be tax “Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.”
Thanks again all, I’ll reply properly later.
Just one quick Q for now: Imagine I was furloughed for a few months, and then made redundant. Would my redundancy notice period of 3 months (if that’s what it is) be based on my current salary, or the effective salary I received during furlough?
There’s an important distinction to make between notice rights and redundancy rights.
My instinct is that any payment during your notice period or in lieu of notice would depend on whether the furlough was still in place. But the furlough is a temporary emergency arrangement made with the consent of both parties at the conclusion of which your normal terms resume even if that coincides with their termination. So any redundancy payment (as distinct from notice payment) should be based on the original terms.
However these are uncharted waters so I can’t be certain.
Redundancy pay is based on your weekly pay. If you are salaried, divide annual salary by 52. Note this is your normal salary, not the 80% furlough as that is not normal. If your salary is approx £35k it wouldnt matter as the 80% is about equivalent to the maximum redundancy pay anyway (£538 pw). Note the max furlough amount is equivalent to a salary of £30k pa. If your pay varies, use the average of the last 12 months worked. This would specifically exclude the furlough period, as it does with ssp / maternity etc. It must be the last 12 month during which you actuall worked.
Hope this helps, and hope it all works out. Fundamentally there is no real benefit to the company in making you redundany now except for potentially reducing the time for which they have to pay you in the future (a bit of a gamble) and potentially limiting redundancy pay if you complete another year of service whilst on furlough, which is a pahetic if they have gone to this level of detail in their calculations (and it has been known, unfortunately…….)
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