With the furlough scheme ending on 30 September, waves of redundancies are forecast to take place over the coming months – so it’s vital merchants think about their future. However, redundancy does come with its own costs, as Nicola Holton, a legal director at Shakespeare Martineau, explains.
As Government financial support begins winding down, many employers will be beginning to feel concerned about the future impacts of Covid-19.
For some, restructuring workforces and streamlining teams may be required and, in the worst cases, making roles redundant will be one option to save money in the longer term.
Although a difficult decision for employers, it can sometimes be the most effective solution, especially when work levels are down. However, redundancy does come with its own costs.
Direct costs
The price of redundancy will vary depending on individual circumstances, with scale being a major factor.
Statutory redundancy pay is only available to employees with at least two years’ service and usually equates to between one to 1.5 week’s pay – depending on age – for each full year worked. The weekly cap is currently £544, with the oldest and longest-serving employees potentially standing to receive a maximum of £16,320. Remember, this is in addition to their notice pay.
Not all employers offer enhanced redundancy. However, for those that do, this will obviously increase overall costs, particularly if those made redundant have longer service. Don’t forget that enhanced redundancy entitlements can carry over from previous jobs under TUPE transfers, so employers need to profile who they are dismissing.
Considerations
Merchants also need to consider the indirect and less tangible costs that can arise, such as a dip in productivity and the possible legal ramifications.
The redundancy process can be time consuming, with managers having to hold meetings with every individual who has been placed at risk. Even those not being made redundant will likely feel the impact, which could, potentially, make them less motivated and result in poorer productivity.
With good legal counsel, businesses can ensure they are undertaking a fair redundancy process. However, this does not prevent ex-employees from bringing unfair dismissal claims. Defending these claims will impact a company’s productivity, morale and comes with substantial associated costs.
Making enhanced redundancy terms conditional upon employees signing settlement agreements is a good way of mitigating these risks, but will obviously only apply to those employers prepared to offer enhanced pay.
Redundancy alternatives
Reducing the workforce can cost more than expected, so it’s worth looking at restructuring alternatives that don’t rely on decreasing headcount, such as lessening workforce-related costs.
In extreme circumstances, reducing wages is possible. However, it’s difficult, so stopping and withdrawing discretionary bonuses and benefits are less risky alternatives.
You could also evaluate your space requirements and consider whether property portfolios are still suitable now agile working practices are more common.
Finally, review financial arrangements and assess whether more beneficial rates are available in the market. Look into whether assets are an option for cash generation.
Act now
There are many businesses in a state of flux, with companies currently in ‘hibernation’ thanks to Government support and legislation in place to protect them from insolvency.
But for merchants to survive longer term, they will need to act now to avoid the common mistakes made by businesses before them.
Every company is different – sometimes a combination of actions is required to prevent insolvency – so if you’re concerned about cash flow, seek independent advice.
