When we enter into employment relationships very few of us give thought to the fact that it will end and one of the common triggers for ceasing the relationship is that the business can no longer afford the costs of employment. It is a scenario that many small businesses are forced to consider, particularly in times of difficult trading conditions. This article is an outline of the requirements of an employee redundancy program including the required length of the process, the likely costs and some of the unexpected obligations placed on employers.
The costs associated with implementing redundancies differ from other forms of termination of
employment. The usual payments relating to accrued salary, accrued annual leave and notice pay apply. In addition, redundant employees are entitled to severance pay that is at a minimum of one week’s pay for every completed year of service. This particular payment can, in some
circumstances, be paid without the need to deduct Pay-As-You-Earn (“PAYE”) tax.
Things to be aware of when implementing an employee redundancy program.
These include:
If the redundancy program arises due to the employer’s financial constraints, employees in the consultative pool have the right to demand disclosure of key financial data from the employer. As a result, you should prepare to disclose information about the company’s revenue and expenditure, including matters like director drawings.
The LRA places a clear obligation on employers to respond in writing to any “written representations” from employees in the consultative pool and great care should be taken in doing so; and Employers must review their employment agreements before implementing an employee redundancy program and in particular, the notice of termination obligations; notice periods that are more than the statutory minimum can significantly increase the overall costs of the Program.
Employee redundancy programs are a tough process for all involved but, at times, a necessary initiative to ensure that the business can continue to operate. They must be implemented fairly and sensitively.
Have questions around redundancy, feel free to reach out to Paul.
