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Redundancy Payments For Very Small Business
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My Partner runs a small electrical contractors. We have 3 staff and himself, but all the money goes on staff wages, he just takes a small wage of £12,000 per annum, mainly because we can't afford to take anymore money from the business, because of overheads, wages etc. Next year my partner is 60years old and he is fed up that he seems (out of loyalty to his staff) he is living on a pittance and not able to save for the future. The staff are 2 qualified electricians, one is his son, who has been with us 8 years and is 24years old. One is a 40year old and has been with him 21years. The other is an office administrator who has been with us 4 years. The 2 electriicians earn £12.50 and £11.50 an hour and the office girl earns £8 an hour.
Basically my partner would like to work on his own. What would we have to pay our staff in Redundancy. Would, (apart from his son) the staff be able to sue him for unfair dismissal if he said he was working on his own
Also as the firm is VAT registered, would we have to set up a new company just for himself to avoid being VAT registered.
Any advice much appreciated
Basically my partner would like to work on his own. What would we have to pay our staff in Redundancy. Would, (apart from his son) the staff be able to sue him for unfair dismissal if he said he was working on his own
Also as the firm is VAT registered, would we have to set up a new company just for himself to avoid being VAT registered.
Any advice much appreciated
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The above link may help re the redundancy payments, he can put each employees details in and it will tell him the statutory amount he will have to pay.
I assume there is no enhanced redundancy terms written into their contracts as many large Companies do.
I am not an expert, but as long as he can evidence that the work is not there and the job, not the member of staff is redundant there is no recourse for them to sue. If he employed soneone new within weeks that could cause problems.
No doubt one of the experts will be along later but in the meantime you should be able to do the calculations.
The above link may help re the redundancy payments, he can put each employees details in and it will tell him the statutory amount he will have to pay.
I assume there is no enhanced redundancy terms written into their contracts as many large Companies do.
I am not an expert, but as long as he can evidence that the work is not there and the job, not the member of staff is redundant there is no recourse for them to sue. If he employed soneone new within weeks that could cause problems.
No doubt one of the experts will be along later but in the meantime you should be able to do the calculations.
Thanks Ubasses,
I will look that link up about Redundancy. The bottom line is that it is physically impossible to do or get any more jobs a week to pay my partner what he is paying the lads. The company can only afford to pay the boss a nominal wage, which always seems ridiculous.
I definately know that selling the company he has worked so hard to build up in this area to his staff would be a definate no for him, especially as he only wants to work on his own and would be in competition with them
I will look that link up about Redundancy. The bottom line is that it is physically impossible to do or get any more jobs a week to pay my partner what he is paying the lads. The company can only afford to pay the boss a nominal wage, which always seems ridiculous.
I definately know that selling the company he has worked so hard to build up in this area to his staff would be a definate no for him, especially as he only wants to work on his own and would be in competition with them
>>>none of the staff have ever had contracts
Oh yes they have! If I offered to your shopping for a fiver, and you agreed to it, a contract would automatically exist between us. Similarly there is always a contract between an employer and an employee, even if nothing is ever written down. Your partner has committed an offence by failing to provide each employee with a written 'statement of employment particulars' within two months of them starting work but that doesn't change their rights (and his obligations) under the legal contract which automatically exists between him and them.
>>>Would, (apart from his son) the staff be able to sue him for unfair dismissal if he said he was working on his own .
ALL of his employees, INCLUDING his son could go to an Employment Tribunal if he unfairly dismissed them. However redundancy (where it is simply impractical to continue employing someone because there is no work for them to do) does not constitute 'unfair dismissal'. Staff then have the right to receive redundancy payments instead.
If your partner is running the business as a limited company (so that the assets of the company are separate to his personal finances) he should consider letting the company fold (and then starting up in business, on his own account, again). The assets of the company should fund the redundancy payments of its staff where possible but, if there is insufficient money to do so, there is a Government fund which will ensure that the staff do not lose out.
>>>Also as the firm is VAT registered, would we have to set up a new company just for himself to avoid being VAT registered.
The requirement to register for VAT is determined by the turnover of the company (in relation to the supply of VAT-able goods and services within the UK), not by the number of staff. If the turnover will continue to exceed £77,000 per year, your partner's business MUST remain registered for VAT. If it no longer will be, he should seek to cancel the VAT registration:
http://
Chris
Oh yes they have! If I offered to your shopping for a fiver, and you agreed to it, a contract would automatically exist between us. Similarly there is always a contract between an employer and an employee, even if nothing is ever written down. Your partner has committed an offence by failing to provide each employee with a written 'statement of employment particulars' within two months of them starting work but that doesn't change their rights (and his obligations) under the legal contract which automatically exists between him and them.
>>>Would, (apart from his son) the staff be able to sue him for unfair dismissal if he said he was working on his own .
ALL of his employees, INCLUDING his son could go to an Employment Tribunal if he unfairly dismissed them. However redundancy (where it is simply impractical to continue employing someone because there is no work for them to do) does not constitute 'unfair dismissal'. Staff then have the right to receive redundancy payments instead.
If your partner is running the business as a limited company (so that the assets of the company are separate to his personal finances) he should consider letting the company fold (and then starting up in business, on his own account, again). The assets of the company should fund the redundancy payments of its staff where possible but, if there is insufficient money to do so, there is a Government fund which will ensure that the staff do not lose out.
>>>Also as the firm is VAT registered, would we have to set up a new company just for himself to avoid being VAT registered.
The requirement to register for VAT is determined by the turnover of the company (in relation to the supply of VAT-able goods and services within the UK), not by the number of staff. If the turnover will continue to exceed £77,000 per year, your partner's business MUST remain registered for VAT. If it no longer will be, he should seek to cancel the VAT registration:
http://
Chris
As regards the VAT issue bear in mind that it might be disadvantageous for him to de-register for VAT. If his customers tend to be other VAT registered businesses then whether he is VAT registered or not will make no odds to them, they will be interested in the net charges. However, if he drops out of VAT he would then be unable to claim VAT back on his purchases so they would become more expensive whilst it's unlikely he'd be able to increase his net income.
He should only de-register for VAT if his customers are predominantly householders who are not VAT registered, or if his suppliers tend to be non-registered themselves (which is pretty unlikely in the electrical trade).
He should only de-register for VAT if his customers are predominantly householders who are not VAT registered, or if his suppliers tend to be non-registered themselves (which is pretty unlikely in the electrical trade).
Good advice from the above, to which I will try to fill in a few gaps, plus a couple of suggestions.
The simple answer to the ‘how much redundancy pay’ issue is (to the nearest 100) is £2400 for the son, £8200 for the 40 year old and about £1000 for the office junior. The two electricians exceed the earnings ‘cap’ of £430pw, on which redundancy is calculated.
But that’s the least of your problems. In addition, you either have to either give statutory contractual notice of termination, which is 8weeks full pay for the son (not capped – so about £3700), 12 weeks pay for the other (£6000) and 4 weeks pay for the junior. Or, if you don’t give notice, you have to allow them to work out their notice periods in full. That’s not going to be very funny in a small business, and if you put people in that situation you cannot always rely of their 100% commitment during the notice period. Surreptitious (but unlawful) building up of one’s own client list off YOUR clients to enable starting afresh, springs to mind.
To go through with this lawfully, you HAVE to consult with ALL the potentially staff first. That’s not as big a deal as it might sound. You sit them down INDIVIDUALLY and explain. The conversation should perhaps go along the lines, look really sorry about this but the business is not making enough money, and for X years I’ve been taking less money than you out of it in salary. The business cannot carry on like this losing money, so I need to cut costs. As you know, most of our costs are staff salaries, so I need to cut the cost base. Invite their suggestions. Do not suggest they might like to take a pay cut.
You do not have to ‘prove’ to the staff that the business has unacceptable profitability – it’s your limited company and most of the detail of costs are private to the shareholders – apart from what you lodge at Companies House.
WRITE SUMMARY NOTES of each conversation. Allow a few days, perhaps one week max, then invite staff back in announce your conclusion. A possible diversion is if one of them says during consultation, what if I take a pay cut of 15% (whatever). I won’t go down that rabbit-hole now. But you may have to consider that.
If you’ve really got this sort of money to ‘do the decent thing’, then fine. But I suspect you are better off drawing more earnings yourself now to push the business very quickly into insolvency and offer to go into voluntary liquidation. That way, we taxpayers will pick up all the redundancy costs and you could start again. It’s been done many, many times before. Skyline or others may have a view about this.
I’d be really interested to know what to charge your labour work out when pricing (and winning) jobs. With what you are paying your electricians, you should be getting work in at a BARE minimum of £200 per day plus VAT, and really a lot more than that. Particularly since you imply your staff plus you are 100% utilised, taking holidays, sickness etc. out. Either that or you’ve got hideously high indirect costs like rent and rates. This business model just doesn’t work for me.
And two final things:
1) you’ve got to treat the son the same during the process (or run the risk of an unfair dismissal case from the other)
2) you could decide just to lose the expensive electrician, on the grounds he is too high a cost – provided you set fair redundancy criteria.
The simple answer to the ‘how much redundancy pay’ issue is (to the nearest 100) is £2400 for the son, £8200 for the 40 year old and about £1000 for the office junior. The two electricians exceed the earnings ‘cap’ of £430pw, on which redundancy is calculated.
But that’s the least of your problems. In addition, you either have to either give statutory contractual notice of termination, which is 8weeks full pay for the son (not capped – so about £3700), 12 weeks pay for the other (£6000) and 4 weeks pay for the junior. Or, if you don’t give notice, you have to allow them to work out their notice periods in full. That’s not going to be very funny in a small business, and if you put people in that situation you cannot always rely of their 100% commitment during the notice period. Surreptitious (but unlawful) building up of one’s own client list off YOUR clients to enable starting afresh, springs to mind.
To go through with this lawfully, you HAVE to consult with ALL the potentially staff first. That’s not as big a deal as it might sound. You sit them down INDIVIDUALLY and explain. The conversation should perhaps go along the lines, look really sorry about this but the business is not making enough money, and for X years I’ve been taking less money than you out of it in salary. The business cannot carry on like this losing money, so I need to cut costs. As you know, most of our costs are staff salaries, so I need to cut the cost base. Invite their suggestions. Do not suggest they might like to take a pay cut.
You do not have to ‘prove’ to the staff that the business has unacceptable profitability – it’s your limited company and most of the detail of costs are private to the shareholders – apart from what you lodge at Companies House.
WRITE SUMMARY NOTES of each conversation. Allow a few days, perhaps one week max, then invite staff back in announce your conclusion. A possible diversion is if one of them says during consultation, what if I take a pay cut of 15% (whatever). I won’t go down that rabbit-hole now. But you may have to consider that.
If you’ve really got this sort of money to ‘do the decent thing’, then fine. But I suspect you are better off drawing more earnings yourself now to push the business very quickly into insolvency and offer to go into voluntary liquidation. That way, we taxpayers will pick up all the redundancy costs and you could start again. It’s been done many, many times before. Skyline or others may have a view about this.
I’d be really interested to know what to charge your labour work out when pricing (and winning) jobs. With what you are paying your electricians, you should be getting work in at a BARE minimum of £200 per day plus VAT, and really a lot more than that. Particularly since you imply your staff plus you are 100% utilised, taking holidays, sickness etc. out. Either that or you’ve got hideously high indirect costs like rent and rates. This business model just doesn’t work for me.
And two final things:
1) you’ve got to treat the son the same during the process (or run the risk of an unfair dismissal case from the other)
2) you could decide just to lose the expensive electrician, on the grounds he is too high a cost – provided you set fair redundancy criteria.
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