Businesses spend £4.4 billion on redundancy payouts

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Employers spent £4.4 billion on redundancy payouts during the 12 months to March 2011, despite the tentative economic recovery.

The total was just 2% lower than the previous year’s, according to figures obtained from a freedom of information request by law firm Wedlake Bell revealed.

The average package was £9,362 – the equivalent of 18 weeks’ salary for a typical full-time employee – according to the data provided by HM Revenue and Customs.

David Israel, head of employment at Wedlake Bell, said: “The sheer scale of these redundancy payments is staggering. The overall financial and human cost of having to make these redundancies has been massive.”

Mike Emmott, employee relations adviser at the Chartered Institute of Personnel and Development, said that companies were choosing to make higher payouts than necessary to minimise the negative effect redundancies had on the business.

“Employers don’t like making redundancies because they have a very bad effect on morale and engagement,” he said.

“They’re choosing to pay their way out to reduce the risk of surviving employees being demotivated and those that are going bringing tribunals.”

Organisations have strived to avoid making compulsory redundancies during the current downturn, he added, preferring instead to offer voluntary redundancy packages, secondments and pay freezes.

Overall, redundancies fell from 480,000 in 2009-10 to 470,000 in 2010-11, but Israel said that he expected levels to remain high in the coming year as private sector organisations restructured and the public sector cuts took hold.

“Businesses may need to use redundancy as they continue to reshape,” he said. “Recruitment may be picking up but these government figures suggest that churn of jobs remains high.”

He also warned that employees were more likely to bring claims for unfair dismissal during periods of slow growth because there were fewer jobs around for them to move to.

The total amount paid out in redundancy payments by UK employers since March 2008 now stands at £13.4 billion, the report added.

Model documents on redundancy, including forms, letters to employees and contract clauses, are available on XpertHR.