It's not news to anyone that many businesses have had a tough time since the start of the pandemic. Companies in the hospitality and events sector were particularly badly affected when bars, clubs and restaurants closed and large events were cancelled, and high street retailers have also suffered, with stalwarts such as the Arcadia Group, which owned Topshop and Debenhams, going bust.
Unsurprisingly, we've seen record numbers of redundancies in the last two years. The recorded level of redundancies in September-November 2020 was the highest in any quarter since records began in 1995, at 402,000. Since then numbers have been falling with 68,000 in the November 2021-January 2022 period.
Redundancies among the over-50s have been higher than other age groups, with over-50s 17 per cent more likely to face redundancy than younger workers.
“Losing a job can cause a great amount of stress, both financially and mentally, but it’s important that individuals try to look forward and start putting a plan in place,” says Tine Chandler, Head of Employment Law at Wright Hassall.
Redundancy isn’t something we expect to face, but it’s wise to understand how it works so that you can prepare financially and emotionally to weather the storm. On everything from unfair dismissal to redundancy pay, here's everything you need to know.
Women and redundancy
Women are experiencing much higher levels of redundancies during the Covid pandemic than in previous recessions, according to the Trades Union Congress.
"The pandemic has just magnified the structural issues and inequalities that already exist in the system," says Jackie Leiper, distribution director at Scottish Widows and chair of its Women’s Empowerment workstream. "Women tend to have more disrupted careers with fewer contributions going into long-term savings, so by the time they are 65, they are likely to have a fifth of what a man would have."
Furthermore, parents, carers and disabled people at least twice as likely to face redundancy according to Citizen's Advice.
How does redundancy work?
The industries hardest hit through the crisis are likely to be those that need to cut jobs. Arm yourself with information: dig out your contract of employment to check your company’s policy around redundancy and what you're entitled to.
"It's useful at this stage to consider your primary aim," says Kim Crangle of Payne Hicks Beach solicitors. "Would you be agreeable to being made redundant for the right package or do you want to avoid redundancy if at all possible? This will affect your strategy in terms of how you approach the issue with your employer."
Is your redundancy genuine?
"A genuine redundancy is one where your employer has a real business reason to make you redundant, such as it doesn’t need you to do your job any more, your workplace is closing or your employer is going out of business or needs fewer employees," says Tracey Moss, senior employment expert at Citizens Advice. "Cases where your redundancy might not be genuine include if your employer has discriminated against you, for example if they make you redundant because you’re pregnant or on maternity leave."
Are you being unfairly dismissed?
There’s a whole list of reasons that can't be used as the basis for redundancy, ranging from age, race and gender to pregnancy, whistle-blowing and making a flexible working request. If you think you’ve been selected unfairly, or that the procedure isn’t fair, you can appeal. In most cases, you must contact Acas before you can make a claim to an employment tribunal.
How can you be prepared for redundancy?
"Facing redundancy can be an incredibly anxious time, so it’s important to make sure you are in the best position possible financially," says Andrew Johnson of the Money and Pensions Service. To make sure you're prepared financially:
- Look at any areas where you could cut down spending in order to build up a savings cushion if you do end up losing your job.
- Boost your credit score, if possible, while still employed – the better your score is, the more attractive you will be to lenders if you need to borrow money in the future.
- "Check whether it’s possible to switch any borrowing to a lender with a better rate or whether it would make sense to pay off your debt more quickly," says Andrew. "It’s worth checking if you have any payment protection insurance, for example, that you might have taken out to cover your mortgage payments."
- Be aware that redundancy pay may affect any claim you might make for Universal Credit and child benefit as they’re both means tested. "For example, if with your redundancy package, you now have more than £6,000 in savings, Universal Credit payments could be reduced," explains Andrew. "And if you have savings of more than £16,000, you won’t be able to claim."
What is the redundancy process?
First, there will be a consultation period: how long this is depends on the number of staff being made redundant, but if it's 20 people or more, you are part of a ‘collective redundancy’, which means there will be a group consultation. The consultation period must start at least 30 days before anyone’s job ends. (If 100 or more people are being made redundant, group meetings must start at least 45 days before anyone’s job ends.)
"Usually, your employer has to follow a process, but they can do things differently if they have a good reason," says Tracey Moss. "For example, they may currently decide to do the meeting via video rather than face-to-face." If fewer than 20 people are being made redundant, you should have at least one individual consultation.
Ask questions in the consultation meeting so you know as much as possible about the process – prepare a list beforehand. Why is your job at risk? Who else is at risk? Also, take the opportunity to consider and suggest options – would you accept a reduction in hours to remain employed? What other roles could you do in the business? If you are competing for roles with colleagues, what criteria will be used?
"Keep a note of face-to-face meetings and telephone conversations and challenge any minutes of meetings that don’t reflect what was said," says Kim Crangle. "Take a trade union representative or colleague with you to any 'at risk' consultations if you can – both for moral support and for note-taking."
If you are offered an alternative role within the company, remember that any reason for rejecting this must be sound, otherwise you could risk losing your redundancy package.
"It’s best to explain your reasons when you refuse the job," says Tracey. "You might give reasons such as the pay is lower, it’s a demotion, there's a longer journey to work or lack of public transport, extra costs of getting to work, disruption to your family life, problems with childcare or health issues."
Most employers will allow you the right to appeal if you’re unhappy with a redundancy decision, but if not, you can consider going to an employment tribunal.
How much is redundancy pay?
If you’ve been employed in the same job for at least two years, your employer has to pay you statutory redundancy. The amount you’ll get depends on three factors:
- Your current salary.
- How long you’ve been in the job (only complete and continuous years of service count).
- Your age (for example, anyone under 22 will get half a week’s pay for each year of service; but if you’re over 41, it’s a week and a half’s pay for each year of service).
During your consultation, make sure you ask for a breakdown of your redundancy pay and ask how this has been calculated. Check your contract of employment and your company's policies to see if you will receive redundancy pay over the statutory amount. Whether or not you have been on furlough should not impact your redundancy payment.
The overall maximum amount of statutory redundancy pay you can get is capped at £16,320 in 2020/21 (£16,980 in Northern Ireland) even if your actual earnings are higher or your length of service is longer than this.
Can I use a redundancy calculator to figure out my redundancy pay?
Some websites have tools which allow you to calculate your redundancy pay using a redundancy pay calculator.
The gov.uk tool can help you figure out what your statutory redundancy will be. You can also use its resources to brush up on your redundancy rights.
Will I only be offered statutory redundancy?
While statutory redundancy pay is the minimum you can be paid by law, you may get more under the terms of your contract (even if you’ve worked there for less than two years). Check your company website.
You may also be owed extra redundancy money. This may be the case for the following situations:
- Pay in lieu of notice. In some instances, you might be allowed to leave earlier. In this case, you’ll get pay in lieu of notice, which is effectively compensation from the employer for ending the contract early. These payments are subject to income tax and NI deductions.
- Holiday pay. Check whether you have any holiday owing. If you have holiday owed, your employer has to pay you for it or let you take it before you leave. You are entitled to a 'reasonable amount' of paid time off to look for work or undergo training.
- Your workplace pension. Contributions will stop when you are made redundant. It's usually best to leave it where it is and receive the pension when you retire but you can also transfer it. Take expert advice if you are considering this.
On furlough? You can still be made redundant, but you are entitled to redundancy payments (based on your usual salary if different from the furloughed rate), notice of dismissal, any wages owing and holiday pay.
Is redundancy pay taxable?
Redundancy pay is compensation for your lost job, so it qualifies for special tax treatment. The first £30,000 is tax-free and you won’t have to pay National Insurance on it either. But, holiday pay, pay in lieu of notice or any other amounts that are pay for your work rather than compensation for the job loss are taxed according to your usual tax band (basic or higher rate). Work out roughly how much you are going to lose in tax (using an online income tax calculator). Your employer should notify HM Revenue and Customs, but you may still need to complete a self-assessment tax return to pay any additional tax. If you think you owe tax or might be due a rebate for over-payment, you can notify HMRC yourself.
What is my redundancy notice period?
Your redundancy notice period is decided by your length of service:
- If you have been employed between one month and two years, it’s at least one week’s redundancy notice.
- If you have been employed between two and 12 years, it's one week’s redundancy notice for each year.
- If you have been employed for 12 years or more, it's 12 weeks’ redundancy notice.
The redundancy notice period starts when you’ve been formally notified that you’re being made redundant and given a finishing date (not from when you’re told you’re at risk).
During your notice period, you have the right to a reasonable amount of time off to search for a new role and attend interviews. It's not advisable to wait until the end of your notice period to plan your next steps.
What if my employer has gone bust?
"Hopefully your employer will have enough cash to pay its workers all of the termination payments they are owed, such as notice pay, redundancy payments, and wages and holiday pay owed," says Citizens Advice's Tracey Moss. "If not, the government’s Redundancy Payment Service may cover some of what you’re owed under statutory rules, which is the minimum you’re entitled to under the law."
Where can I get independent redundancy advice?
If you are a member of a trade union, it will be able to help you work out if you have a claim and will support you through the process.
Alternatively, free help is available through Citizens Advice, Money Helper (formerly the Money Advice Service), or Acas. You can also check your household insurance for free legal expenses cover.
If you need a solicitor, find one through The Law Society or call on 020 7320 5650.
What should I do with my redundancy pay?
This depends on how much it is. The first call on any money, though, will be for paying priority bills and expenses and ensuring you have enough put by in an emergency fund (ideally, the equivalent of 3-6 months’ salary). If you’ve received a substantial amount, think carefully about how to make the money work for you.
"Your pension is a tax-efficient option for saving," says Jackie Leiper. "If you are using your redundancy money, you can pay the equivalent of 100% of your taxable earnings in that tax year. But you can also carry on paying up to £2,880 a year towards your pension when you don’t have any earnings. Alternatively, use your ISA allowance (preferably a stocks and shares ISA) to save."
You should also check your State Pension forecast, advises Jackie, and, if you don’t have 35 years of National Insurance contributions, you might be able to use some of your redundancy money to top it up. (You need 35 years of contributions to qualify for the full State Pension).
"If you can afford to, it might be worth using some of your redundancy payment to pay off expensive debts. There are many different types of debt with varying rates of interest. Credit cards and overdrafts can have rates of 18 – 40%, with payday loans having rates of 1,500% and more!" says Jonathan Watts-Lay, WEALTH at work, a specialist provider of financial education and guidance in the workplace.
"Your redundancy payment may be the single biggest payment in your life, so use it to reset your finances and put yourself in a better position to go forward," says Jackie. "It’s a once-in-a-lifetime opportunity to do so."
