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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Why undersea cables are under threat – and how to protect themUndersea cables power the internet and are vital to modern economies. They are now vulnerable
-
UK wages grow at a record paceThe latest UK wages data will add pressure on the BoE to push interest rates even higher.
-
Trapped in a time of zombie governmentIt’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debtThe downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
UK economy avoids stagnation with surprise growthGross domestic product increased by 0.2% in the second quarter and by 0.5% in June
-
Bank of England raises interest rates to 5.25%The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK wage growth hits a record highStubborn inflation fuels wage growth, hitting a 20-year record high. But unemployment jumps
-
UK inflation remains at 8.7% ‒ what it means for your moneyInflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
