Business

Voluntary redundancies: good or bad for business?

One way for employers to minimise the number of compulsory redundancies is to implement a voluntary redundancy scheme
Andrew Lightburn

AS the current furlough scheme tapers off and the October 31 closure date looms closer, the prospect of redundancies may be a growing reality for some business owners. Faced with such decisions, what are the pros and cons of the voluntary redundancy option?

Let's face it, implementing compulsory redundancies on employees who have loyally served a company - in some cases for many years – is difficult for most business owners. Add to that the challenges of following the correct, and sometimes complex, legal process.

And even if you do follow all the advice, there’s no guarantee that an employee will not pursue an industrial tribunal against you if he/she feels they’ve been treated unfairly.

So, what is the alternative?

It is certainly good practice for employers to try to minimise the number of compulsory redundancies, and one way to do so is to implement a voluntary redundancy scheme.

Employers can offer a minimum redundancy package such as contractual notice, statutory redundancy payment and any holiday monies owed. Whilst ordinarily that may entice employees where there is a decent chance of getting another job, in the current economic climate it is more likely that the offer of an enhanced redundancy package will be a better incentive for employees to leave.

By way of background, a statutory redundancy payment is based on an employee's age, length of service and gross weekly wage, which is capped at £560. There are a number of ways that this payment can be enhanced, such as removing the wage cap so that the redundancy pay is calculated on the employee’s full wage.

Alternatively, more generous schemes may offer a flat rate for all employees, eg 1.5 weeks gross pay for each year or part-year worked.

Due to new Northern Ireland regulations, the statutory redundancy payment of a furloughed employee who may be on a reduced wage must be calculated based on the employee’s standard full salary.

In terms of the process to follow for a voluntary redundancy exercise, an employer would either invite all employees to make expressions of interest or restrict it to the specific areas or departments where the redundancies are required. The employer would then provide details of the redundancy package offer and wait to see whether the employees wished to apply for voluntary redundancy.

However, the main problem with voluntary redundancies is that an employer has no control over who expresses an interest. It is, to some extent, a lottery. Invariably it is the employees with most to gain who will come forward, ie those with the longest service who will receive the biggest redundancy payments and notice periods. It could also be attractive to employees who may not wish to return to work after being on long term sick or maternity leave.

Ultimately the employer can decide whether or not to accept an application for voluntary redundancy. But it does create the potential to cause awkwardness if an employee comes forward to say they want to leave the business and their request is subsequently refused.

Overall, inviting applications for voluntary redundancy is regarded as a positive as the process can be quick, straightforward and potentially limits the risks when having to make several compulsory redundancies. It may even make the compulsory process easier in terms of numbers and timescales.

Legally, employers would be well advised when accepting an employee's application for voluntary redundancy to conclude it by way of a compromise agreement, particularly where an enhanced redundancy payment is being made.

Although, there is no strict requirement for this and some employers will be content with a simple resignation from the employee in return for payment of the redundancy package, a compromise agreement assists in term of speed and ease, which may be of longer-term benefit to the business.

The most important thing to consider is your target employees and whether the package offered incentivises them to apply, particularly if they have shorter service and are on lower salaries.

Whatever the decision, seeking appropriate advice from a legal/HR perspective is certainly advisable.

Andrew Lightburn (andrew.lightburn@dwf.law) is head of employment at DWF Belfast (www.dwf.law)

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