How to approach job cuts in your business

Strict rules govern the redundancy process. Prepare very carefully if you're intending to cut jobs in your business.

London sightseeing bus © Getty Images
The tourism sector faces protracted turmoil © Getty
(Image credit: London sightseeing bus © Getty Images)

The government’s decision to extend the furloughing scheme by four months reflects the severe and enduring economic fallout from the Covid-19 crisis. But there was also a practical element to last week’s announcement. Without an extension to furloughing, under which the government picks up the tab for 80% of the wages of workers temporarily laid off because of Covid-19, many employers would have had to launch redundancy programmes.

That is because any employer wanting to make more than 100 job cuts has a legal duty to run a 45-day consultation period as part of the process. Employers worrying that there would be no way to keep furloughed workers on once the scheme ended in June, as previously scheduled, would have had to begin consulting on 18 May.

How consultation works

For small and medium-sized employers, such deadlines may not be so pressing, since they are less likely to be making as many as 100 job cuts. Nevertheless, many smaller businesses will be thinking about whether they will eventually have to do so.

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They will also have noted that from July onwards the government is expecting employers to make a contribution to the cost of the furloughing scheme, though it has yet to explain its plans in detail.

Research from the Chartered Institute of Personnel and Development suggests one in four employers in the UK expect to make at least some permanent redundancies as a result of the Covid-19 pandemic. In the many sectors of the economy facing protracted turmoil, such as retail, travel and tourism, job losses are inevitable.

Employers will naturally regard redundancies as a last resort, exploring all other options to reduce costs, including making full use of the government support schemes.

However, your business does need to begin planning for future redundancies even if you hope to avoid them. The normal legal rules continue to apply to redundancy processes, even during the pandemic.

That includes the responsibility to consult with all staff who may be at risk of redundancy. The 45-day rule doesn’t apply on smaller job-cut programmes, but if you’re thinking of making more than 20 redundancies, you’ll need to have at least 30 days of consultation with your staff’s trade unions or elected employee representatives.

Even on smaller numbers of job cuts, you still need to talk to staff potentially affected in advance. You need to explain why you have to make redundancies, how many jobs – and which ones – are affected, how you will select which workers lose their jobs, and how you intend to calculate redundancy pay.

There are also strict rules on the selection process itself, which has to be conducted according to fair and objective criteria. It also makes sense to have an appeals process ready for employees who feel unfairly treated.

Given that you must give staff their statutory notice before making them redundant – and you can only do this once consultations have finished – the whole process of making job cuts can take some time. This is why it so important to be prepared, even if you’re hoping to avoid having to cut jobs at all.

David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.