As part of its plan to make work pay, the government announced a rise in National Insurance and extra rights for workers. But businesses have raised concerns about the extra costs, with many considering cutting their workforce to reduce the cost. 
The British Retail Consortium warned that the speed and scale of new costs will “make job losses inevitable,” while Rupert Soames, Chair of the Confederation of British Industry predicted "an ugly rush before some of these things come into force." The Federation of Small Businesses backs this up, with a survey showing that 32% intend to reduce their headcount before the measures take effect. Others, including Next, will rely on a “natural turnover” in staff. Instead of dismissing staff, they will not replace those who leave, instead introducing self-service tills. 
 
Letting staff go isn’t necessarily the easy option – especially if the work will continue but be outsourced to contractors. Mistakes could end up costing businesses in tribunal claims and compensation, leaving businesses no better off. 
 
 
How to let staff go? 
Employers must have a fair reason to dismiss staff. Fair reasons include misconduct, lack of capability, redundancy, and some other significant reason. 
Those relying on natural turnover must be careful that the pressure to downsize doesn’t influence their disciplinary or capability decisions. Employers should be certain that managers are not taking a stricter approach to issues as an indirect way to reduce numbers. These grounds cannot be used to downsize - just the appearance of misusing these grounds could lead to tribunal claims. 
 
If staff are being let go because the role is changing significantly or no longer exists, then redundancy is the only appropriate ground for dismissal. 
 
 
Making redundancies 
Employers must have the legal right to make redundancies. This means that the job will no longer exist because the company is closing, moving location, or changing what it does and how it does it. Otherwise, you risk the dismissal being unfair. 
 
Specific circumstances in your business will affect whether you need to follow collective consultation, how long consultation should last and whether you must involve external organisations. 
 
If you will be keeping some staff on, you must be careful of the criteria you use to decide which employees are selected. You cannot legally base this decision on protected characteristics – even indirectly being influenced by characteristics such as age, sex or disability could leave you open to discrimination claims. Women who are pregnant or on maternity leave have specific rights. A poorly thought out or mis-applied procedure may discriminate against some employees even if you didn't intend to. A poor redundancy process could leave you facing claims for unfair dismissal or discrimination, paying additional compensation, or facing unlimited fines. 
 
The Employment Rights Bill will also change redundancies when it takes effect. People who are currently workers will gain redundancy rights when the categories of ‘worker’ and ‘employee’ are combined, and more redundancy processes will require collective consultation. You should keep an eye on timings – if you wait until the bill becomes law, there will be additional considerations. 
 
 
Outsourcing 
Businesses that still need people to do the work may look to replace employees with self-employed staff. (Employing workers would simply delay the problems temporarily until the Employment Rights Bill is passed, when these workers would gain full employment rights.) 
 
It is important to understand employment status and the factors that determine whether a role is employed, self-employed or (currently, at least) a worker. Several factors affect this status, including bargaining power, how much freedom or control the individual has, and the freedom to work for other people. 
 
To ensure the role is genuinely self-employed, employers may need to accept some changes to the role and less control over the individuals doing the work. If workers don't genuinely fit the definition of self-employment, employers could face costly tribunal claims and be ordered to compensate for the rights the individual was denied. This could be far more costly overall. 
 
Outsourcing could also bring the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) into play. This can be complex and leave employers (and the entities to whom employees are transferred) at risk of litigation. 
 
 
How to protect your business? 
If you’re considering reducing your workforce, it is vital to get advice. 
 
We can help you to understand your obligations when making redundancies, create a suitable process for your company and then guide you through it to ensure you don’t leave yourself at risk of claims. If you plan to outsource role, we can help you understand employment status and ensure that the roles are genuinely self-employed. 
 
We appreciate that spending on legal advice may seem counterintuitive when trying to save money. But in the long run it could save you a significant amount in the cost of tribunal claims, compensation, and even fines for mistakes in your redundancy process. 
 
Get in touch for advice. 
 
 
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