Small businesses face a number of challenges, some of which can affect their profitability. When faced with a downturn in business, small business owners sometimes need to consider reducing their workforce by making redundancies. One of the questions regularly asked of our HR and employment law specialists is, ‘Do small businesses have to pay redundancy UK?’.
The answer is yes. All employers in the UK have to pay redundancy regardless of the size of their business. Here, our expert HR professionals explain what small businesses have to pay in redundancy in the UK and how those sums are calculated.
Call us now on 01491 598 600 or Click Here to Make An Enquiry and we will be delighted to help you.
What Is Redundancy?
Redundancy arises when an employee’s role is no longer needed within an organisation. If you want to dismiss an employee for reasons like misconduct or performance, the situation is not one of redundancy. If you make someone redundant when they are not, you run the risk of them making an unfair dismissal claim against you, which you will likely struggle to successfully defend.
Examples of genuine redundancy situations include the following:
- The employee’s role has been automated
- Your business is relocating
- You have decided to discontinue a product on which the employee works
- Another employee has taken on the role following a reorganisation
If you’re unsure whether an employee’s situation is one of genuine redundancy, it’s crucial to take expert advice from specialists like us before proceeding.
What Do Small Businesses Have To Pay For Redundancy In The UK?
Individuals who fulfil the legal criteria are entitled to redundancy pay. Redundancy pay is often incredibly important to employees since it will enable them to meet their living expenses until they find alternative employment. Accordingly, ensuring you pay redundant employees the correct amount is vital.
The legal minimum that employers must pay is statutory redundancy pay. Some businesses offer enhanced redundancy packages, and checking the employee’s contract to see whether any such policy applies to them is essential.
In addition to redundancy pay, redundant employees may be entitled to various other payments, including a paid notice period, unused holiday pay, and any outstanding commission or bonus.
Who Is Entitled To Redundancy Pay?
Individuals whom you have made redundant are only entitled to redundancy pay if they meet the following criteria:
- They have worked for you continuously for at least two years. Their period of employment is calculated by working back from the last date of their employment, being when their notice period expires.
- They are classed as an employee. Part-time employees are employees and are entitled to redundancy pay calculated on the same basis as that applicable to those who work full-time. However, someone can work for you and not be an employee. For example, they may provide services on an ad hoc basis without regular or guaranteed hours.
- Their dismissal was due to genuine redundancy. You cannot make an employee redundant for reasons that do not give rise to a genuine redundancy situation. If you do, the employee can challenge your actions.
If you offer an employee suitable alternative employment and they refuse, they may forego their right to redundancy pay.
How Should Small Businesses Calculate Redundancy Pay?
Statutory redundancy pay is the same for all redundant employees, regardless of the size or nature of the organisation they worked for. It is calculated as follows:
- Half a week’s pay for each year they were employed by you under the age of 22
- A full week’s pay for each year they were employed by you between the ages of 22 and 40
- One and a half weeks’ pay for each year they were employed by you over the age of 41
For the purposes of redundancy pay, an employee’s weekly pay includes any guaranteed overtime as well as any commission or bonuses. If an employee does not earn the same amount each week, their redundancy pay should be based on their average hourly rate over 12 weeks.
Statutory redundancy pay is currently capped at £700 a week for 20 years, regardless of how long the employee worked for you and how much they actually earned. This means that statutory redundancy pay is currently capped at £21,000.
How Can We Help?
At GAP HR, we are experts in HR and employment law issues. We assist small businesses throughout the UK with all types of staff-related issues, including redundancies. We will guide and support you through the process, keeping you legally compliant at every stage and saving you money on expensive tribunal proceedings.
Call us now on 01491 598 600 or Click Here to Make An Enquiry and we will be delighted to help you.
