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When you run a business and have staff, you may find a time comes when you wish to restructure your company. If so, this could affect your employee’s role, potentially leaving them without a job. As a result, it is essential that you follow the appropriate processes to let your employees go. This article will explain some legal aspects of restructuring and redundancy for small business owners.
What are Restructuring and Redundancy?
If you restructure your business, this means that you make changes to your company in terms of either:
- organisational structure; or
- job roles.
Restructuring could be beneficial, as it may allow your business to operate more efficiently and plan well for the future. However, it can also include cutting out activities that do not align with your future commercial goals. Therefore, you may need to make redundancies when you restructure your business.
Redundancy means dismissing employees to reduce your workforce. For example, if your business restructuring includes using labour-saving technology, some of your employees’ job roles are no longer required.
What Do I Need to Do if I Am Considering Redundancies?
If you think you may need to consider redundancies, you need to first consider other actions you can take. For example, you may be able to:
- reduce overtime;
- slow down on recruiting new staff;
- no longer use contracts to or freelancers;
- consider short-time working;
- make temporary lay-offs; or
- offer staff the opportunity for voluntary redundancy.
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How Do I Ensure Legal Compliance During the Redundancy Process?
If you decide that redundancies are your only option during your business’s restructuring, you must keep your employees updated on your plans and their expected timeframes. Alongside these updates, you must ensure that your redundancy process is fair. This includes:
- implementing a selection stage;
- having a consultation period; and
- considering alternative employment for your staff.
Selection Stage
The way you select employees for redundancy must be fair, and you must not discriminate. Therefore, you may select, for example, by:
- looking at their level of previous work,
- comparing employee’s skills and qualifications; or
- looking at disciplinary records.
Consultation Stage and Other Employment
If you carry out redundancies, you must then have a consultation process. This means you discuss your potential redundancies with staff and respond to their objections and representations. You will also have to consider offering alternative employment to your employees.
You must consult collectively if you think you will make 20 or more employees redundant and do so within 90 days. Your legal adviser can help you with this process.
Redundancy Pay
You may need to pay your redundant employees redundancy pay. This is because you may have a contractual entitlement to do so. Where not, they may qualify for a statutory entitlement. They will be eligible for the latter if you have employed them continuously for two years.
Notice Period
Furthermore, you have a legal duty to give your employees notice of redundancy. The length of the notice may be contained in their employment contract. However, if it does not, a statutory notice period applies that you must pay your staff for, regardless of whether you require them to work during this time or not.
If you have continuously employed your employees for two years, you will also have to allow your employer time off work to look for a new job or arrange training to assist with the new job search. This timeframe extends to the end of their notice period. You do not have to pay them more than 40% of a week’s worth of pay when they take this time off. Importantly, a reasonable amount depends on an employee’s circumstances.
What Do I Need to Know if I Am Making Other Changes?
When you restructure your business, you may not make redundancies, but other changes may affect your employees’ job roles. For example, you may make changes to their:
- job roles;
- places of work;
- pay amount; or
- benefits.
If so, you may legally need your employee’s consent for these changes, but this depends on the flexibility of the employment contract. Therefore, you should seek assistance from an employment lawyer and ask them for specialist advice if changes during restructuring involve transferring employees and the business.
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Key Takeaways
If you decide to restructure your business, you may need to change job roles and make your employees redundant. Because this process can significantly affect your employees’ livelihoods, you should consider alternatives first, such as short-time working and reducing staff overtime. However, if you choose to go ahead with redundancies, ensure that you:
- hold a selection stage and consulting period;
- consider alternative employment for your staff; and
- provide sufficient notice to the affected employees.
If you need help understanding the legal aspects of restructuring and redundancy for small business owners in the UK. In that case, LegalVision’s experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Restructuring is where you make changes to your company either through organisational structure or job roles to make your business, for example, run more efficiently.
Redundancy is a type of employee dismissal that reduces the number of staff in a business.
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