Implementing A Voluntary Redundancy Scheme

No employer lays off any of their staff lightly, and it is usually the last option they turn to when their business is in trouble. But right now there are many businesses facing huge challenges and these will come to a head as the furlough scheme is wound down.

Protecting Your Business & Workforce

A voluntary redundancy scheme may be a route that some businesses decide to go down in an effort to protect their business and their workforce from closure. But it is not always plain sailing setting up a scheme, there are pros and cons to this type of redundancy scheme.

The Correct Way To Set Up Voluntary Redundancy Schemes

There is an excellent article in the Irish News today (25th August 2020) by Andrew Lightburn discussing this very subject. Here are a few paragraphs from it looking at how to set up a voluntary redundancy scheme correctly:

“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.”

Help & Advice For Your Business

Very good advice indeed. If you need help and advice in any financial aspect of the business you own or manage do not hesitate to get in touch with our dedicated team here at WHR Accountants on 028 3752 2909.