Requesting redundancy vs working notice period

FreelanceSoftwareDeveloper · Oct 16, 2009

Hello,

I am planning in the next few weeks to hand in my notice at work to start my own business. I am currently on a 3-month notice period but I don't believe it would suit either party for me to continue for 3 months. My current role isn't as critical as what I was doing when my contract got changed to 3 months.

My business plans though are based on recieving another 3 months pay.

So here's the question...

Would it be reasonable to request a voluntary redundancy in return for a shorter notice period?

As an example, if my gross salary is £2000/month but i'm only taking home £1500/month after tax/NI/Pension/Student Loan. The company is also making a pension contribution of 3%.

So if they offered me a redundancy payout of £4500 which is tax/NI exempt I would be happy. They would save £1500 plus the pension contribution. Maybe work a 1 month period to handover and take £3000 is more realistic.

Is this a valid proposition to the Finance Director?? Are there any issues associated with it? I'm not bothered about the pension contributions.

A number of people have been made redundant (voluntary and forced) recently and my job title isn't one that I expect would be directly replaced if that makes any difference.

Regards,

Matt

Homshaw · Oct 16, 2009

Tough question. You are probably best placed to know how he would react.

The 12.8% employer's NI is also a factor

Big Pete · Oct 16, 2009

barrowmatt said:
Hello,

I am planning in the next few weeks to hand in my notice at work to start my own business. I am currently on a 3-month notice period but I don't believe it would suit either party for me to continue for 3 months. My current role isn't as critical as what I was doing when my contract got changed to 3 months.

My business plans though are based on recieving another 3 months pay.

So here's the question...

Would it be reasonable to request a voluntary redundancy in return for a shorter notice period?

As an example, if my gross salary is £2000/month but i'm only taking home £1500/month after tax/NI/Pension/Student Loan. The company is also making a pension contribution of 3%.

So if they offered me a redundancy payout of £4500 which is tax/NI exempt I would be happy. They would save £1500 plus the pension contribution. Maybe work a 1 month period to handover and take £3000 is more realistic.

Is this a valid proposition to the Finance Director?? Are there any issues associated with it? I'm not bothered about the pension contributions.

A number of people have been made redundant (voluntary and forced) recently and my job title isn't one that I expect would be directly replaced if that makes any difference.

Regards,

Matt

makes sense, put it to them

elaine@cheapaccounting · Oct 17, 2009

Sorry guys here is my harsh view - if an FD got a sniff of someone intending to leave which could say a few quid for a firm which clearly needs it, given it has already laid staff off, then he would sit on his hands and force your hand!!!

Why would he pay anything when you intend to go anyway!?

You were not part of the other redundancies - so looks like your job is safe for now. So no reason to pay you anything.

Happy to be proved wrong and for the FD not to be as ruthless as expected of someone controlling a firm's finances.

Good luck with the business though.

Homshaw · Oct 17, 2009

I have worked for companies in redundancy situations

Views vary enormously

Some, if truly struggling for cash, would take the view that you are leaving and refuse to go along with your suggestion. Of course then you might not leave and working relations might be strained. Worked at a foundry where they asked people to work their notice. Equipment was sabotaged and someone even tried to blow up the furnaces. In the end they just paid out

Worked other places where they try to keep people who want to stay and help people who want to leave within the bounds as to what is good for the company. If the business is basically sound and it simply wants to be more streamline to ensure its future this may be a reasonable option. Happy workforce who want to work there, people leaving to do what they want still on good terms. Peace harmony and good guy status for a few thousand pounds.

If I had to let the lady who works for me go I would try my best to help as would most of my clients. She has done her best for me and I would reciprocate. I have other clients who hire and fire with abandon

Honestly if you don't know how they will react knowing the ethos and attitudes of the company you are wasting your time asking here. Your work colleagues will have more idea.

FreelanceSoftwareDeveloper · Oct 17, 2009

Thanks for the responses, and thanks for the employers NI bit, that also goes in my favour.

What i'm not trying to do is call their bluff asking for redundancy, did think about that but their not that stupid!

What i'm doing is going to them with my notice which is 3 months, I need the equivalent of 3 months pay and can work the 3 months notice period without any problem. What I thought is if they don't need me for 3 months there may be an agreement to be made that suits both parties.

I can't afford to simply agree to leave earlier, if I had a 1 month notice period I would wait another 2 months.

The trade-off for the company is time, if they believe they can run fine without me then there is a cash saving for them paying me in a redundancy situation, if they would need to replace my role or part of it then there may be no benefit and they would quite reasonably say I should work the 3 months.

It sounds like a valid proposition to bring up, but if they don't go for it I won't be too suprised or disappointed, my business plan is based on a further 3 month employment. The idea being if I hand in my notice end of this month I get a full paycheck in January for after Christmas!

I'll let you know how I get on, it will be a couple of weeks away yet though.

Thanks again,

Matt

FreelanceSoftwareDeveloper · Oct 17, 2009

Had my payslip out, based on my maths, if I worked one month then finished taking the equivalent of 2 months net pay it would give the company a cash saving of £2,230.

To make this saving they would obviously have to lose 2 months of my work which is the trade off for them.

Cash saving is certainly high on the agenda for the company.

Matt

Homshaw · Oct 17, 2009

Are you not entitled to 3 months notice plus any redundancy?

Why are you in such a rush to start self employment? Is a month here or there important?

If you chill and present it as an option which you would consider but are not committed to and say if you need me I'll help out as best I can on an hourly rate it may be easier to do a deal

The first £100 a week or so of your wages wouldn't attract NI by the way. So if your gross is £2K a month its £1500 * 12.8%. All figures are dog rough

FreelanceSoftwareDeveloper · Oct 17, 2009

Homshaw said:
Are you not entitled to 3 months notice plus any redundancy?

Why are you in such a rush to start self employment? Is a month here or there important?

If you chill and present it as an option which you would consider but are not committed to and say if you need me I'll help out as best I can on an hourly rate it may be easier to do a deal

The first £100 a week or so of your wages wouldn't attract NI by the way. So if your gross is £2K a month its £1500 * 12.8%. All figures are dog rough

I think you have mis-understood my situation. I am (almost) 3 months away from starting trading full-time, I am currently doing a lot of R&D, samples and starting the website etc. It is therefore time for me to hand my notice in at work to give them 3 months notice as contracted.

I need the equivalent of 3 months pay to keep me going, that is what my financial forecast asumes, working my 3 month notice period is obviously the normal option. Leaving tomorrow on full pay for 3 months is the ideal option but that's never going to happen.

I would expect my boss to think the best option is to work a 1 month notice period and then finish but that is not acceptable to me, therefore I started to think there may be another way...

So what I will be proposing to my boss basically is: Here is my notice of 3 months, would there be any mutual gains from offering me a voluntary redundancy instead of accepting my resignation. For example if I work 1 month and leave with a payout of £3200 the company would make a cash saving of £2300 compared to me being employed for a further 2 months.

Obviously this is only a viable option if they are happy they can continue to function fine without my position. There would be no cost saving if they had to employ someone else.

The aim of my post was to determine if the suggestion of a cash saving was correct, on the basis that no-one has come back and said,no it will cost the company x, y and z to change the scenario to a redundancy one I assume it is.

I don't have any expectations just wanted to know if it was a reasonable option.

I do also work in a sales role so 3 months is a long time to have someone in a customer facing position who will of course act professionally but will have little motivation! I should say I am on good terms with the company, will of course be professional whatever scenario and will leave on good terms wishing them all the best and expecting the same.

Matt

FreelanceSoftwareDeveloper · Nov 4, 2009

As an update, I handed my notice in on Monday afternoon, early Tuesday morning I get called in to my directors office and asked to go home immediately and come back Thursday (tomorrow) for a meeting.

Basically they don't want me to work my notice period and are going to offer me a payout based on my take home pay similar to what I outlined above. I never got round to asking for this it was their suggestion.

What they are going to ask is that I sign a compromise agreement (to restrict possible competition) as part of this but thats not going to happen, unless there paying a lot more!!

They have 2 options in my view, let me come back to work out my notice period on normal pay (which they have prety much ruled out) or give me a payout saving them around £3k.

Regards,

Matt

LaShel Bookkeeping · Nov 4, 2009

I agree its definitely worth asking but dont forget your pay in lieu (notice period of 3 months) is taxed/ni'd in full. Its redundancy pay that is not taxed, worth considering. Also asking for redundancy doesnt cover any claims on mortgage insurances etc. Hope this helps!

Geoff T · Nov 4, 2009

barrowmatt said:
What they are going to ask is that I sign a compromise agreement (to restrict possible competition) as part of this but thats not going to happen, unless there paying a lot more!!

My only advice on this one is not to set your mind in stone on this issue, until you see what they're offering vs what they want in return...

If it's nothing too onerous, and gives you exactly what you wanted...

yorkshirejames · Nov 5, 2009

elainec100 said:
Sorry guys here is my harsh view - if an FD got a sniff of someone intending to leave which could say a few quid for a firm which clearly needs it, given it has already laid staff off, then he would sit on his hands and force your hand!!!

Why would he pay anything when you intend to go anyway!?

You were not part of the other redundancies - so looks like your job is safe for now. So no reason to pay you anything.

Happy to be proved wrong and for the FD not to be as ruthless as expected of someone controlling a firm's finances.

Good luck with the business though.

Elaine, if I followed correctly, the company are obliged to pay him for the next three months (whether he works or not) - his issue is how this payment is dressed up as. If he resigns and they put him on gardening leave, they still need to pay him.

To the OP - section 404 etc of ITEPA (generally speaking) doesn't allow you to waive your right to your contractual notice period - so what you describe wouldn't work. Happy to review the contract and advise further.

MrPAYE · Nov 5, 2009

LaShel Bookkeeping said:
but dont forget your pay in lieu (notice period of 3 months) is taxed/ni'd in full. Its redundancy pay that is not taxed, worth considering. quote]

This is not necessarily correct. Pay in lieu of notice is generally NOT taxable / NI'ble if it is not contractual (subject to the £30k ceiling for tax obviously). There are a lot of ifs buts and maybes inbetween though that makes this a bit of a minefield if you don't know what you are doing.

Unless you know the tax technicalities of Payments In Lieu of Notice, you should avoid making any comments, in my humble professional opinion.

yorkshirejames · Nov 9, 2009

MrPAYE said:
LaShel Bookkeeping said:

but dont forget your pay in lieu (notice period of 3 months) is taxed/ni'd in full. Its redundancy pay that is not taxed, worth considering. quote]

This is not necessarily correct. Pay in lieu of notice is generally NOT taxable / NI'ble if it is not contractual (subject to the £30k ceiling for tax obviously). There are a lot of ifs buts and maybes inbetween though that makes this a bit of a minefield if you don't know what you are doing.

Unless you know the tax technicalities of Payments In Lieu of Notice, you should avoid making any comments, in my humble professional opinion.

Click to expand...

The three months notice in this scenario surely is contractual. Even if the company decided to offer a blanket £20,000 payment referenced as compensation, then (in my opinion) the three months worth (say £6k, using earlier figures) would still be subject to NI and tax.

Except however it is not yet 9:00 in the morning, I have not yet had my morning coffee, and there could be something that I have missed that Mr. Paye is going to remind me of, and make me look an idiot.

Thinking of the top of my head (and talking generally, rather than referring to the OP) - if the ee had committed gross misconduct, they would of course not be due any contractual notice. Could we have a scenario where there was a dismissal for GM, but with a compromise agreement (to cover confidentiality, and for the company to avoid a tribunal) where a lump sum was paid tax free? Think I need that coffee to consider further.

MrPAYE · Nov 9, 2009

yorkshirejames said:
MrPAYE said:

The three months notice in this scenario surely is contractual. Even if the company decided to offer a blanket £20,000 payment referenced as compensation, then (in my opinion) the three months worth (say £6k, using earlier figures) would still be subject to NI and tax.

Except however it is not yet 9:00 in the morning, I have not yet had my morning coffee, and there could be something that I have missed that Mr. Paye is going to remind me of, and make me look an idiot.

Thinking of the top of my head (and talking generally, rather than referring to the OP) - if the ee had committed gross misconduct, they would of course not be due any contractual notice. Could we have a scenario where there was a dismissal for GM, but with a compromise agreement (to cover confidentiality, and for the company to avoid a tribunal) where a lump sum was paid tax free? Think I need that coffee to consider further.

Click to expand...

The OP, as in most situations like this, appears to be contractually entitled to 3 months NOTICE.

However, this is not the same as saying that he is entitled to PAY in lieu of that notice if the 3 months is not given.

If his contract of employment allows the employer to make such a payment instead of giving him the required 3 months notice, or even allows the employer the choice to give him the notice or make the payment, then this would be seen to be contractual and therefore subject to tax/NI in full.

If the contract is silent on pay in lieu of notice, and the employer makes a payment as he is in breach of contract, then it may be possible to pay the amount tax/NI free. I say may as there are some caveats around this where the employer always makes such a payment.

Looking at the OP's situation, it is impossible to say whether a pay in lieu of notice is taxable or not as we have not seen the documents.

Enjoy your coffee

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