Prepare for the cost of redundancies - Margaret Adewale, the HR Dept Gloucester
Smaller businesses looking to reduce their workforces should urgently prepare for the costs of redundancies following changes to the Coronavirus Job Retention Scheme late last year.
That's the warning from human resources experts The HR Dept Gloucester, as director Margaret Adewale explains:
Rule changes in December mean furlough grants can no longer contribute to notice pay.
This will prove a major challenge for some small businesses, many of which are struggling to survive this crisis, if the furlough period comes to an end in April as planned.
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 this 80 per cent contribution towards notice cannot happen again.
As things stand, changes in furlough rules mean 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 nor age factoring when considering redundancy pay.
Employers need to be aware of these issues and start preparing as time for consultation processes and time and cost for statutory notice need to be factored in.
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 costs could well push businesses under.
The HR Dept has played an important role in lobbying for change to the Coronavirus Job Retention Scheme since it was rolled out last spring with the company campaigning for the introduction of a flexible element to the scheme, as well as changes in July rather than August as originally planned.
Now we are recommending a further change to the rules to allow the furlough grant to contribute towards notice pay again, as was the situation last year.
If the furlough grants could be put towards notice pay, employers could potentially start the redundancy process now.
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.
With the reality of redundancies rapidly approaching, this measure would let small business 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 is not a winning situation for anyone involved - the business or the employees most importantly, as well as the taxpayer and the Government itself.
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