With the passage of time inevitably comes staff turnover. If you’ve got a strong organisational culture, sufficient incentives and a clear employee value proposition, there’s a good chance the churn will be low. Nevertheless, with the average employee turnover rate at 15% a year, it’s best to know in advance exactly what is expected of you as an employer by the law when a member of staff leaves the business.
To that end, we’ve put together the following guide to employee offboarding to keep every employee exit as straightforward as possible.
Practical steps for a smooth exit
As soon as an employee notifies you that they plan to leave the company, it’s up to you as their employer to put the wheels in motion for a seamless transition. First and foremost, you’ll need to confirm the following key pieces of information:
- The start date of their notice period according to the terms set out in the contract, and
- The date of their final day working for the company.
When an employee resigns
Acquiring written confirmation from an employee is always recommended, and most will either send an email or provide this in a form of a letter during a face to face meeting. The date of their resignation will be set out in these communications.
Remember, when an employee expresses their desire to resign, you are within your rights to try and convince them to stay. However, you cannot refuse to accept their resignation. Should they change their mind after handing in their resignation, you aren’t legally obliged to agree to them continuing to work for you. This decision is at the employer’s discretion.
When dismissing an employee
Terminating an employee’s contract early is rarely an easy task, but if a member of staff has breached their contract or has been given several written warnings and refused to change their behaviour accordingly, you are within your rights to dismiss them from the company.
If an employee has worked for you continuously for a year or more, they are entitled to request a written statement that provides the reasons for the decision. Even if your employee doesn’t request this, it’s best practice to provide them with this and to be as detailed as possible in communicating the reasons for their dismissal.
When terminating an employee’s contract, be mindful of the notice period provided in their contract of employment. Employers must give employees the amount of time stated in the contract of employment or the legal minimum notice period – whichever is longer. The legal requirements of notice period duration are either:
- One week for employees that have been working for your company between one month and two years
- One week for each year completed of employment up to a maximum of 12 weeks.
- At least 12 weeks’ notice if they’ve been with you continuously for more than 12 years
There are certain instances in which an employer can dismiss a member of staff without giving notice. This is usually the case when an employee has committed gross misconduct so severe that they forfeit their rights to a notice period. Examples of this could be theft of company property or an act of violence on another member of staff. If you are dealing with an issue of this nature and need closer assistance from an employment lawyer, get in touch.
Starting the handover process
When an employee resigns, you’ll inevitably begin your search for a replacement candidate to fill the role. Most employees will be understanding of the need to ensure a smooth transition, but it certainly helps to provide them with a handover timetable and a prioritised list of tasks to tick off before their notice period comes to an end.
A good handover helps the business to avoid bleeding out knowledge upon the employee’s exit from the company; it should be as extensive as possible so as to ensure minimum disruption for the rest of their team and wider organisation.
Although it isn’t a legal requirement, it’s a good idea to conduct a formal exit interview with the employee before they leave to get valuable insights as to how the business could be improved from the perspective of your staff.
Once again, the law doesn’t explicitly require you to give your employee a reference upon their exit unless specifically stated in their contract or settlement agreement, but it’s considered good practice to ask whether they want one. Any information provided in a reference must not be misleading to a future employer.
While it is not illegal to give a bad reference, you can only do so if you genuinely believe the information provided is true and accurate and you have reasonable grounds for your belief.
Payroll, accounting and pensions
When an employee leaves, there are various procedures that need to be followed from a payroll perspective. These are as follows:
Calculating final payments
When an employee leaves, you’ll need to work out exactly how much their final pay will be. This can be calculated by taking into account:
- How much of pay is due
- Whether they are owed money for untaken holidays or whether money needs to be subtracted from their pay to account for the employee going over their pro-rata holiday allowance
- Whether any other deductions need to be made e.g. a low-interest loan repayment.
If an employee refuses to work their notice period, you won’t be required to pay them for this time. If, however, you place an employee on gardening leave, you must still provide payment for their notice period.
As soon as an employee leaves your company, you are obligated as an employer to send their final pay details to HMRC. The employee’s leaving date should be entered on to the Full Payment Submission when reporting pay. The leaving date should not be before the date on which they receive their final salary.
Issuing a P45
After you have notified HMRC of the change, you’ll be able to produce a P45 to give to your employee. This is a legal obligation that is usually facilitated by payroll software. If not, you can download a blank P45 form from GOV.UK. You won’t have to issue a P60 if they leave during the tax year as all the relevant details will be on the P45.
Communicating pension options
Providing the employee has not opted out of your workplace pension scheme, it will be your responsibility to communicate what options they have moving forwards. If you arranged for the employee to contribute to an individual plan, such as a personal or stakeholder pension, their exit from the company will not change anything other than your contributions to the scheme stopping following the end of their notice period. As an employer, it will be your duty to notify the provider/fund of their exit, after which a leaver letter will be issued to the employee confirming their options.
Paying a pension to a retiree
If your employee has decided to call time on their career and take retirement, you will need to provide them with a retirement statement showing their employment details up to their retirement date. When it comes to issuing their pension, you should use a different Payroll ID for their pension payments, clearly indicating the change in status on the Final Pay Statement with the previous payroll ID. However, you must use the employee’s existing tax code on either a weekly or monthly basis until HMRC provides a new code.
Paying statutory maternity, paternity or adoption pay
Any statutory maternity, paternity or adoption pay must be paid in full until the end of their statutory leave, even if the employee resigns from their role before this period comes to an end.
Reclaiming company property and enforcing restrictive covenants
Although the conversation around employee resignations, retirements and dismissals tend to be dominated by the rights of the employee, there are certain rights that an employer is entitled to when someone leaves the company. An example of this is company property and confidential information, which you will be able to reclaim before the employee leaves the business. This can range from laptops, tablets and mobile phones to login details. It’s important that a clause regarding company property and your rights to reclaim it upon termination of the contract is written into the employment contract in the first instance. We also recommend including specific terms and restrictive covenants for your right to retain ownership of intellectual property created by the employee while they were working for your company. Keep in mind that restrictions will only be enforceable if they are reasonable and proportionate ways of protecting a legitimate business goal and take into account things like the role carried out by the employee, their knowledge and workforce stability.
You may also be able to seek repayment of money owed by the employee, such as cycle to work schemes or loans. When reclaiming training costs, always check in advance that there is a signed contract confirming that deductions can be taken from a salary to avoid potential conflict with the employee.
Dealing with disputes
Most employee exits will be smooth sailing with the largest hurdles coming from operational challenges such as knowledge gaps and the recruitment process. However, there will be instances in which disputes arise – particularly in the case of employee dismissals. These can be costly, time consuming and damaging to your reputation. In order to minimise the risk of an unfair dismissal claim being brought forward against you, it’s critical to follow the legal guidelines on the fair dismissal process. Read up on the right and wrong way to dismiss an employee here.
Employer checklist for when employees leave the company
- Secure written confirmation of their final date and communicate this in your Final Pay Statement to HMRC. Ensure the notice period meets the legal minimum requirement.
- Provide the employee with their P45 and clearly communicate a timetable for handover tasks.
- Communicate pension options and pay the employee their final salary including pay for statutory parental leave
- Reclaim costs and company property but ensure to adhere to the terms set out in the employment contract.
- Follow a fair dismissals process when terminating an employee’s contract early and seek legal advice to prevent disputes from escalating.
Should you need a little hands-on support from a specialist employment lawyer through the process, don’t hesitate to drop us a line. You can reach us on our online chat box or by filling in the short contact form – a member of our team will get back to you quickly to arrange a free consultation