Now is the time for business owners to prepare for the cost of redundancies

April 30, 2021

Smaller businesses looking to reduce their workforces should urgently prepare for the costs of redundancies, following changes to the Coronavirus Job Retention Scheme made late last year.

That’s the warning from human resources experts The HR Dept, which provides human resources advice and support for more than 6,500 small and medium-sized businesses (SMEs) across the UK and Ireland.

Rule changes last December mean that furlough grants can no longer contribute towards notice pay, a fact of which The HR Dept believes many smaller businesses are unaware.

Its experts believe this will prove a major challenge for some small businesses, many of which are struggling to survive this crisis, once the furlough period comes to an end in September.

Caroline White, Director at The HR Dept Cambridgeshire and North Herts, said: “Last year, employers could use the furlough grant to cover the redundancy notice period, topping up the remaining 20 per cent to full pay. Employers might not realise that this 80 per cent contribution towards notice can’t happen again.

“As things stand, changes in furlough rules mean that the employer will not be able to use the furlough grant and will need to pay the notice in full, without Government support. Other employers may not understand employees’ statutory rights to notice periods, or age factoring when considering redundancy pay.

“In any case, employers need to be aware of these issues and start preparing now, as time for consultation processes and time and cost for statutory notice need to be factored in. Particularly where the employees facing redundancy have long service – this is likely, as they are the most experienced and will have been the most expensive to make redundant last year and remain on furlough – the coming costs could well push businesses under.”

Having continually welcomed the Government’s efforts to support the UK’s small business network through this crisis, The HR Dept has played an important role in lobbying for change to the Coronavirus Job Retention Scheme (CJRS) since it was rolled out last spring.

The company successfully campaigned for the introduction of a flexible element to the scheme, as well as helping ensure that the changes happened in July last year, rather than August as originally planned.

Now it is recommending a further change to the rules to allow the furlough grant to contribute towards notice pay again, as was the situation last year.

Caroline White said: “If the furlough grants could be put towards notice pay again, employers could potentially start the redundancy process now. Then, if the situation proves less dire than expected, they simply retain the employee and stop the notice period – at no additional cost to the business or the taxpayer. If the redundancy still needs to take place, much of the notice pay cost has already been absorbed.

“It wouldn’t cost the Government any extra – the Exchequer is already contributing furlough periods during this time anyway.  However, with the reality of redundancies rapidly approaching, this measure would let small businesses take those decisions now, so we can avoid a mass of insolvencies further down the line.

“Otherwise, there is a serious risk that businesses which delay the redundancy process until the end of the furlough period will face significant costs, especially regarding long-serving employees.

“These could sink the whole business, with the Government picking up all the redundancy costs, through the National Insurance Fund. It’s not a winning situation for anyone involved – the business or the employees most importantly, as well as the taxpayer and the Government itself.”