Redundancy: What you need to know
Your rights as a Director, the protection that is available to you and Advice on what to do if redundancy does happen
As the easing of lockdown continues and the true cost to businesses becomes apparent, it is inevitable that redundancies will increase. Indeed, that increase has already started as companies tighten their belts and prepare for the future. Some, sadly, will not be able to avoid insolvency and with this will come redundancies with high costs, both human and financial, to all involved. The process can be very complicated. In this article we look at just 3 areas of redundancy: directors’ rights if their employer is insolvent; the Coronavirus Job Protection Scheme and redundancy payments; and how to make yourself employable if redundancy does strike.
Directors, Insolvency and Redundancy: Directors Often Do Not Consider Themselves to be Employees
Government legislation covers the rights of employees who are made redundant if their employer is insolvent, and these rights are covered in detail in this article. But what about company directors? Is a company director entitled to redundancy pay if their company is insolvent?
The answer, which is not all that widely known, is yes – directors are entitled to the same redundancy payments at insolvency as normal employees, providing they can prove their status as an employee of the company, and fulfil more than an advisory or non-executive role. In more detail, the eligibility criteria – which will need to be proven to the liquidator – comprise:
- Does the director have a contract of employment?
- Has the director worked for at least 16 hours per week?
- Has the company been incorporated for over two years?
- Was the director genuinely carrying out a practical role for the company?
If the above criteria can be proven, and if the director has been paid a salary through PAYE then it is likely they will be eligible for a range of statutory payments at insolvency. These payments include:
- Redundancy Pay
- Any arrears in salary and holiday pay
- Pay in lieu of notice
These statutory payments are claimed through the Redundancy Payments Service and are paid from the National Insurance Fund.
Can the Coronavirus Job Retention Scheme be Used for Redundancy Payments?
The Coronavirus Job Retention Scheme has seen over 1.2 million employers put more than 9.5 million workers on furlough at a cost to the government of more than £30 billion. The scheme undoubtedly ensured there was not a massive wave of redundancies during the lockdown, but that is now changing, and it has been reported that employers who are planning mass redundancies of furloughed workers cannot use ‘furloughed money’ for redundancy pay. Indeed, the Treasury has reworded the purpose of the Coronavirus Job Retention Scheme to say it is “integral” that the money is “used by the employer to continue the employment of employees.”
This led to calls for clarity from the Treasury, causing HMRC to comment: “This change is just setting out the intended purpose of the scheme … employees remain eligible while on their statutory notice period.” Further, the law firm Lewis Silkin has pointed out that HMRC has said that the furlough scheme can be used during both redundancy consultation and notice periods, but not for redundancy pay. It is thought that if companies do use furlough payment monies to fund redundancy pay, they could well be forced to pay it back to HMRC.
It is the Role That is Being Made Redundant, not the Person
Being made redundant can be a devastating blow to the individual and his/her family and coming to terms with it and planning to recover from it is difficult but vitally important. We asked Susannah Brade-Waring, Managing Director of Bournemouth based business consultants, Aspirin Business for her thoughts on how redundant employees can work to make themselves employable.
“My view is that unwanted redundancies are incredibly painful, and a massive knock to both confidence and sense of identity. I always remind clients that it is the role that’s being made redundant, not the person. Let me explain it another way.
Given Lockdown, it is unlikely we will travel abroad this year, and so we have just bought a VW Camper Van. It’s 10 years old with 126,000 miles on the clock. However, it has been well-maintained and updated. We are like VW Camper Vans – we can keep ourselves updated and relevant, or we can become outdated. There are core skills that will never go out of date, and these include problem-solving, people skills and flexibility.
In the old days, employees relied on their employers to provide training. Nowadays, high-quality knowledge is available 24/7, anywhere and often for free. It is our own responsibility to keep ourselves updated and relevant. In that way, whilst our role might be made redundant, we will always be confident of being highly employable. Please use this time to upskill yourself, be flexible, be responsive, communicate, and challenge yourself to be the best employee you can be – then you’ll get to choose your employer.”
So, the message from Susannah is that whilst the coming redundancies are inevitable and will be painful, a positive mindset and a commitment to being as employable as possible will make a difference.
And finally, although we will see a spike in insolvencies, and therefore redundancies, it is the job of insolvency practitioners and restructuring specialists such as us to save businesses (and jobs) as well as implement insolvency procedures. As the most recent R3 survey shows, where insolvency practitioners were involved, 40% of insolvent businesses were saved. And that is certainly something that is needed right now.
Part of the service we offer is to talk to your employees on your behalf – removing the emotional tie you may feel to them – to give them practical help and guidance.