personal finance

Furlough warning: Redundancy rates set to rise as firms struggle with NI plans – get ready


Furlough payments kept millions of workers afloat during the pandemic but Rishi Sunak, along with the wider Government, confirmed the scheme will end on September 30, 2021. Many experts have warned employers across the UK will not be able to afford to keep their staff on as the Government pulls back support and as such, redundancies could become prevalent over the coming months. Citizens Advice warned workers need to get on top of redundancy rules ahead of this.

According to the charity, furloughed workers should:

  • Check if your redundancy is fair. There are rules to protect you from being discriminated against, and from being picked for redundancy due to an unfair reason. For example, although you can be made redundant while pregnant or on maternity leave, if this is the reason for doing so, it counts as automatic unfair dismissal and discrimination. Other examples of unfair reasons for choosing someone for redundancy include being picked because you work part-time or you made a complaint about health and safety.
  • Check how much redundancy pay you get. You’re entitled to at least ‘statutory’ redundancy pay if you’ve been an employee for two years or more. The amount you will get depends on your age and how long you have worked for the company. Some employers make enhanced contractual redundancy payments on top of the statutory amount.
  • Furloughed? Make sure you get 100 percent redundancy pay. If you are made redundant while furloughed, your redundancy pay should be based on your normal wage and not the 80 percent that you’ve been getting during furlough.
  • Check your notice period. If you’ve worked for your employer for at least a month you’re entitled to paid notice that you’re being made redundant. After one month in the job, you must be given one week’s notice, rising to two weeks after two years service, and then a further week per year unemployment up to a maximum of 12 weeks. You may be entitled to a longer notice period as part of your employment contract. Your notice period only starts when your employer confirms that you’re going to be made redundant and not when you’re only at risk of redundancy. Your employer might decide to give you notice pay instead of making you work your notice period – this is called ‘pay in lieu of notice’.
  • Check your holiday pay. You’ll be paid for any statutory holiday you have left over when you leave. This should be at your normal pay rate, even if you’re currently furloughed on 80 percent of your pay. Your employer can tell you to take any remaining holiday during your notice period as long as they give you the right notice (two times the length of the holiday they want you to take).
  • You might be entitled to paid time off to look for work. If you will have worked for your employer for at least two years by the end of your notice period, you’re entitled to ‘reasonable’ time off to apply for jobs or go on training. You can take the time off at any time in normal working hours and your employer can’t ask you to rearrange your work hours to make up the time off. When taking time off to look for work, you’ll be paid at your normal hourly rate, but only for up to 40 percent of the time you take off – for instance for up to two days if you work a five-day week. The rest will be unpaid.
  • Check if you’ve got legal help via your home insurance. Often people get ‘legal expenses cover’ as part of their home insurance package, but many don’t realise they can get free legal help to challenge their redundancy if they think it’s discriminatory or unfair. It’s worth checking the terms and conditions and speaking to your insurer. If you have a trade union at work, you could also contact them. Your union can help you work out if you’ve got a claim, and support you through the process, for example by going to meetings with you or negotiating on your behalf.

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The likelihood of redundancy may have been raised with the introduction of increased National Insurance bills. Recently, Boris Johnson announced a “Health and Social Care Levy” will be introduced from April 2022 in an effort to cover rising NHS and social care costs.

From next year, National Insurance rates will be raised by 1.25 percent and this increase will be levied on workers, employers and the self-employed alike.

These raised costs, according to analysis from UHY Hacker Young, may result in a higher likelihood of redundancies. Andrew Snowdon, Partner and Head of Tax at UHY Hacker Young, explained: “With the furlough scheme being withdrawn at the end of the month, the increase in National Insurance will have made the cost of keeping jobs that much more expensive.

“Unfortunately, this extra burden may have helped make the decision for employers who were in two minds over keeping the jobs of those on furlough. It will be the employees who suffer as a result.”

UHY Hacker Young also argued the increase will “see the gap between employment and self-employment widen even further”, adding additional difficulties.

Employees and employers will both have to pay an extra 1.25 percent in National Insurance (total increase of 2.5 percent), whereas dividend and self-employment tax will have a singular, 1.25 percent increase. Additionally, while the 1.25 percent tax increase is initially through an increase in National Insurance, it will be made into a separate levy from April 2023.

UHY Hacker Young said this will create another step and even more complexity for businesses with employees on payroll.

John Sheehan, Partner at UHY Hacker Young, commented: “We expect the rise in National Insurance will increase differences between employment and gig economy taxation. As a result, employers may be encouraged to make more use of self-employed workers, while shifting away from employees.

“The Government has made the point in the past that it would work on closing the gap between taxation of the employed and self-employed, however, its latest tax increase will have done the opposite.”

Unfortunately, insolvency figures released today highlighted businesses are entering the autumn in a precarious position, placing the relative strength of employability in doubt.

The Insolvency Service, detailed corporate insolvencies increased by 22.9 percent to 1,348 in August 2021 compared to July’s figure of 1,097, and increased by 71.1 percent compared to August 2020’s figure of 788. Additionally, personal insolvencies increased by 0.2 percent to 9,106 in August 2021 compared to July’s figure of 9,090, and were 42.7 percent higher than August 2020’s figure of 6,381.

Colin Haig, President of insolvency and restructuring trade body R3 and Head of Restructuring at Azets, expanded on what this means for both the corporate world as well as personal finances.

“The insolvency figures published today highlight how much tougher the climate is for businesses and individuals than this time last year, and the toll the pandemic has taken on business and personal finances over the last 12 months,” he said.

“The increase in corporate insolvencies was driven by a rise in Creditors’ Voluntary Liquidations (CVLs). Numbers for this process were 115 percent higher than this time last year, and 30 percent higher than in 2019, which suggests that despite the opening up of the economy, there are a number of company directors who are opting to close their businesses after a year and a half of trading in a pandemic.

“This comes despite the fact that August was one of the better months for businesses since the start of the pandemic. The lifting of the final restrictions and the continued impact of the vaccine rollout means that more people are working, shopping and spending, and that looks set to continue as we enter the autumn.

“However, with the furlough scheme closing at the end of this month, company directors need to be aware of the signs of business distress and seek advice if any of them appear. If a firm has problems paying rent, staff or suppliers, has issues with cashflow, or its directors are concerned about its future, now is the time to seek advice from a qualified professional, rather than waiting till the problem has become worse.

“On the personal insolvency side, while the figures published today show a small increase in the total number of personal insolvencies compared to the previous month, it’s too early to tell whether this is a definite trend. However, personal insolvencies have risen sharply compared to this time last year. This has been driven by an increase in the number of Individual Voluntary Arrangements, which could be more of an indication that people are seeking and receiving help with their financial issues, rather than necessarily showing that personal insolvency levels are rising.”





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