LETTING GO
Making cuts to the payroll is a difficult process for any business. What’s more, failing to approach redundancies in a structured, organised way can result in costly cases that put a company under even more pressure, defeating the purpose of the exercise. None of us like firing people, and that’s perhaps why many businesspeople put their heads in the sand, only moving to cut staff in a disorganised way when the situation becomes critical. This can be disastrous, both for morale and for the businesses’ bottom line.
For starters, you need to determine how much you will have to save on your staffing costs for the business to remain viable. This requires a keen eye on cash flow which, as we’ve noted in previous posts, is essential. If you employ more than 20 people, a ‘collective redundancy’ situation may exist – this comes with heavier legal obligations that I’ll cover in a future article. For now, I’ll just say that you should get professional advice for managing these larger scale redundancies.
For any redundancy, though, you need to follow certain procedures. Firstly, you need to select employees for redundancy using criteria that you can credibly show is fair and reasonable – this will be crucial if a claim for unfair dismissal arises. You have some freedom in this, of course. Many employers choose ‘last in – first out’ because it’s ostensibly objective, and less damaging to morale of established staff. You are allowed to select certain employees over others based on their skill-sets, though it would be a good idea to have some kind of evaluation made in writing in case you’re challenged on it. It should go without saying that discriminating based on gender, marital status, beliefs, sexual orientation or other factors is not allowed.
Aside from this, you have a responsibility to act reasonably in making redundancies – this is an extremely vague term, and leads to many cases of perfectly compliant employers reaching the Rights Commissioners. Anecdotally, we know that employers who let staff make an alternative suggestion to save their jobs – either collectively or singly – tend to fare far better in these proceedings. The more you can consult, and prove that you did, the better.
Staff are entitled to a set notice period of at least two weeks when they’re being let go – people with five years of service are entitled to double that, those with ten years get six weeks and people working at the same company for 15 years or more are entitled to eight weeks. Rather than having a potentially angry employee around the office for a month or even more, many employers prefer to let them go straight away. This is allowed, but you’ll have to pay a person’s wages and holiday entitlements right up to the end of the notice period.
Moreover, you’re also obliged to make a redundancy payment for staff with two or more years of service – the Department of Social Protection has produced a useful calculator for working this out here. You can claim 60% of this back by filling in the RP50 form and submitting it to the Department of Social Protection. Employers who simply can’t pay have a heavier burden: they have to tell the Department that they’re unable to make a redundancy lump sum payment, and submit evidence to support their claim, while accepting liability for 40% of the sum in writing.
As you can see, there’s quite a lot of paperwork and planning involved in making redundancies without opening yourself up to large liabilities. At DCA, we’d work with clients making this genuinely painful decision, helping them work out how much the payroll needs to be cut by, devising criteria that are fair and allow business to continue, and working out a company’s total liability. We can also handle the substantial amount of paperwork involved. When redundancies are needed, it’s hard for any business owner to assess a situation coolly, and all too easy to make a mistake that ends up costing serious money. Consider getting in professional advice for this process – it will prove a worthwhile investment.
Eamonn Garvey,
Partner,
DCA Accountants and Business Advisors
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