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Redundancy - Part 1

ARTICLE ORIGINALLY PUBLISHED NOVEMBER 2012

REDUNDANCY OR RETAINING SKILLED STAFF?

In the current climate the issue of staff savings are very topical. Redundancies are taking place in Salons but, in addition, salon owners are looking to save costs by reducing hours of staff rather than losing their skills on a permanent basis. Other salons look make savings in areas where the employee doesn’t directly generate income eg reception. Whichever option is chosen it is essential the correct process. Redundancy is a dismissal in law and staff therefore have a right to go to Tribunal to claim unfair dismissal. Similarly where staffs hours and pay are cut employers can equally liable to find themselves at Tribunal if they get the process wrong.

The Legal Position

When you make an employee redundant then it is a dismissal as far as the law is concerned and the employee will have a right of appeal. Employees have 3 months from their effective date of termination months to take their case to Employment Tribunal. There is an established process which you should follow with your staff .as soon as the possibility of a redundancy arises.

STAGE ONE

Firstly you are required to consult with the staff potentially affected. The word “consult” is important, you don’t simply identify who you wish to make redundant before you start the process. In most cases it would be safest to arrange a staff meting and speak to all the staff You would also outline the selection process if alternatives to redundancy cant be found.

In the consultation you would need to provide sufficient information to make it clear that there is a genuine need to make savings for example loss of profitability, falling turnover etc. After the open meeting, typically you would meet staff individually over the next week or so. During the consultation the staff may put forward other ideas or have questions relating to their personal circumstances.

Faced with the situation where some staff might be redundant, they are often much more receptive to ideas which, whilst uncomfortable, might mean they keep their job.

It is essential you consider and respond to any suggestions made during the consultation. If 20 or more staff might potentially be redundant then the consultation period must be 90 days. In most salons it is unlikely that this number will be affected. There is no maximum or minimum timescale but typically this would be a minimum of 2 weeks. At the end of the consultation period, if the need to make redundancies remains, it is at this stage you make your selection decision ie who is to be made redundant.

It goes without saying that the selection criteria need to be objective and transparent.

ALTERNATIVES TO REDUNDANCY

As mentioned above, during the consultation you and your staff may come up with a range of options as an alternative to a redundancy. Here are a few that my clients have used recently.

  • Pay Reduction - Subject to the minimum wage levels staff can agree to a permanent or temporary pay reduction.
  • Commission Reduction - Similarly staff can agree to reduce commission or agree higher targets.
  • Reduction in Hours - This is an area for serious consideration. Five members of staff reducing one day a week creates the same effect as one redundancy. The reduction might be on a “quiet day” and result in further saving. Of course it is subject to staff agreement.
  • Change of Working Pattern - Staff reverting to 4x10 hours day from 5x8 hours day might enable you to close on your quietest day ensuring the utilisation of your staff is maximised and possibly saving energy costs.
  • Unpaid Leave - Staff taking one or two extra weeks unpaid leave per year effectively reduces your wage bill.
  • Voluntary Redundancy - It might be that an employee comes forward and asks for redundancy. You do not have to accept the request, for example they might be your most productive therapist.

At the end of the day none of the above might be sufficient to solve your problem. But, if nothing else, your staff will be clear that you have explored every avenue before making redundancies. Similarly, you will have valuable evidence of the extent of your consultation if by any chance you are taken to Tribunal.

THE COSTS

Cost is inevitably an issue and might determine which route you go down and who is selected.

If an employee is dismissed for redundancy they firstly receive notice ie one weeks pay for each year of service to a maximum of 12 weeks pay. On top of this, if they have 2 years continuous service then they receive a redundancy payment as well. The calculation isn’t straight forward as the redundancy pay depends on the age of the employee. A maximum of 20 years service can count and then you use the following grid:

  • half a week's pay for each year of employment up to the age of 22
  • one week's pay for each year of employment between ages 22 and 40
  • one and a half week's pay for each year of employment over the age of 41

You are able to cap a weeks pay at £430, you will see that ,despite the age discrimination laws older employees cost more to make redundant.

Let's look at a stylist aged 43 with 10 years service. They would receive 10 weeks notice and a redundancy payment 11 weeks pay (8 years at 1 week and 2 years at 1.5 weeks) giving a total cost of 21 weeks pay. After 21 weeks you start to save their salary but before committing this amount of money and losing the employees skills it is easy to see why some of the alternatives listed above can make business sense.

In next months features we will look at how to actually select who is to be made redundant and a case study regarding an employer who got it wrong.



David Wright Personnel

Phone - 01302 563 691

Mobile - 07930 358 067