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Redundancy can affect all businesses, no matter their size. Often, redundancy occurs because of a decline in the economy or a decrease in the market share, causing a reduction of customers or clients.
To cope, some businesses must reduce their number of employees. Particularly those whose roles are no longer needed due to a change in a business’s emphasis or as a cost-cutting measure.
Redundancy arises when a business stops trading or diminishes from the market. This can occur if:
In these instances, you may make your employees redundant.
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Legitimate reasons for making your employees redundant include:
To make sure you’re handling redundancy properly, as stipulated by the law, you must follow these four simple steps:
Any employee who has continuously worked at your company for at least two years legally qualifies for redundancy pay. Also, employees who have a fixed-term contract of two or more years are eligible for a redundancy payment if their contract expires because of redundancy.
As a business owner, it’s essential to note that if your staff doesn’t meet these criteria, then they aren’t entitled to receive redundancy pay. Rather, they’re entitled to holiday pay and notice period pay, which you owe them.
As the owner of a small business in the UK, if you make your employee redundant, under the law you must pay them the following amounts:
The average number of years that is considered is twenty years. If an employee became redundant on or after the sixth of April, 2021, their weekly redundancy pay is capped at £544. The maximum statutory redundancy pay that this employee can get is £16,320. However, if the employee became redundant before 6 April 2021, their redundancy pay will be lower.
An employee isn’t entitled to statutory redundancy pay if their employer offers to keep them on or offers them suitable alternative work, which they refuse for no good reason.
Further, if you dismiss an employee because of misconduct, that employee isn’t entitled to any redundancy pay.
The following categories of employees aren’t entitled to statutory redundancy pay:
With the inevitable difficulties small businesses face, there may be times when small business owners need to let go of some of their employees. It’s essential for all business owners to note that if an employee has been in the same position for at least two years, they must pay them redundancy money. So, every business in the UK, even small businesses, must pay redundancy money.
For further reading, check out our other articles like Business angels: advantages and disadvantages or Average settlement (compromise) agreement pay-outs.
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