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Businesses pay out £3.8bn in redundancy payments this year

Emma Burns

255,000 employees were made redundant in 2016/17. Contributor Emma Burns, Head of Employment and HR Services Group – Hugh James.

Businesses paid out an estimated £3.8 billion to employees who were laid off in 2016/17*, says Hugh James, the Top 100 law firm. Hugh James says that although the value of redundancy payments has declined over the last year, from £4 billion in 2015/16, businesses are still making the decision to pay out high redundancy costs in the short term in order to increase profitability over the long term.

Businesses are estimated to have made over 250,000 statutory redundancy payments in 2016/17. Hugh James explains that redundancies can be a shrewd long-term investment cost. Restructuring a workforce may have an initial cost, but can have long term benefits for the business.

However, in many sectors the full impact of the uncertainty following the Brexit vote has not yet been fully felt. This suggests that more businesses could be cutting jobs in the future, in order to repair their profit margins. 81 profit warnings were issued by London-listed companies in the last quarter of 2017**, jumping 11 percent from 73 a year earlier, in Q4 2016.

The value of redundancy pay-outs in the last year was an average of £15,000 per worker. This exceeds the maximum statutory pay for redundancy per employee***, which is currently £14,670. Generally, larger employers tend to offer enhanced schemes whereas SMEs often offer only statutory payments, suggesting a mixed picture of where redundancies are taking place.

Emma Burns, Head of Employment and HR Services Group at Hugh James, says: “Despite the relatively high costs, redundancies can make a workforce leaner and more fit for purpose. Businesses should not shy away from redundancy exercises. However, in some cases, businesses may be better placed to consider other measures such as changing employee terms and conditions or cutting hours. This can reduce the pay bill, without having to pay redundancy costs.”

“There may be additional redundancies if uncertainty over a Brexit deal continues – and there remains a potential that some jobs will be moved overseas in the long term.”

*Based on HMRC data, financial year end

**According to a study by accountant EY

***Statutory redundancy pay is one week’s pay for each full year worked between the ages of 22 and 41

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