Managing change: How to reduce headcount

In this article: In this first of a two part feature looking at the how when times are difficult and small businesses need to re-size we investigate the legal aspects of making redundancies

Sometimes running a small business is tough and there can come a time when you realise that without significant cuts you won’t be able to get things back on track. It isn’t pleasant but it can’t be ignored.

Letting staff go is never going to be easy but going about things the right way will help everyone concerned.

Sandra Martins, head of employment at Radius Law, explains how a smaller business would go about the process while staying the right side of employment legislation.

When looking at a reduction of fewer than 20 people, she advises: “You will need to set up a selection and consultation process for all people in the pool.” This pool should include all employees at risk who perform the exact or similar roles. Businesses then need to identify a set of objective selection criteria and apply them to the pool. Employees are scored against the criteria to identify who will be going.

“We recommend a minimum of three criteria, which may include length of service, attendance record, disciplinary record and performance. However, you have to make sure the criteria are neither discriminatory nor applied in a discriminatory way. For example, you must disregard absence due to disability or family-related rights,” says Martins.

The consultation should happen with the pool and the first meeting can be held with everyone to point out there is a possibility of redundancies, the reasons behind them and the proposed criteria. Scoring can then be carried out and in the second meeting, carried out on an individual basis, you can discuss their score and where they sit in the pool, provided the scores are anonymised.

“You should consider alternatives to redundancy and allow the employee to make suggestions. Then you can come to a final decision and have a final meeting. The employee has the right to appeal,” says Martins.

During the notice period there is an obligation to offer any suitable jobs within the company should they become available before the employment ends. Martins advises that it’s also good practice to inform employees of all vacancies, even if you think the employee is not interested.
There is also an alternative route, where the company restructures. Under this procedure all those impacted are effectively let go and then asked to reapply for the, fewer, new jobs.

Martins says: “This means you don’t have to apply objective criteria to the pool and do the scoring. You can be more subjective when interviewing and deciding who you re-employ. However, again, you can’t discriminate when choosing who you keep and let go.”

For those staff that are made redundant, there are minimum payment rules to follow.

“To qualify for redundancy payments, staff need a minimum of two years’ service and the calculation works on a combination of length of service and age,” says Martins.

“For those under 22 the payment is half a week’s salary multiplied by complete years-served. For ages 22-40 the calculation is based on one week’s salary and for those aged 41 or over it’s 1.5 weeks. A week’s pay is currently capped at £525, but may change on 6 April. There is also a cap on the number of years served – at 20.”
She adds: “For those leaving through redundancy, you also have to pay them their salary and benefits during their notice period and pay in lieu of any holiday owed. However, rights to bonus payments during notice will depend on the contract or bonus policy. You also have to allow them a reasonable amount of, paid, time off to find other work.”

Staff that have worked for less than two-years in the business aren’t eligible for redundancy payments, but they should be included in the same pool as other staff in similar jobs at risk and must not be discriminated against.

Martins adds one final piece of advice that company owners should keep in mind: “It’s good practice to be human about the process. Listen to employees during the process and bear them in mind should things improve in the future and always seek advice when considering redundancies or restructures.”

In part two of our ‘Managing Change’ series we talk to a business turnaround expert about how best to manage those people who are sticking with the business and to get profits back in the black.

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