Redundancy can sometimes be tricky to navigate, especially when you’re the owner of the business and the redundancy can affect you personally in a whole host of different ways.
It may mean “goodbye” to someone who you’ve long considered to be part of the family or it could affect the morale and performance of everyone else remaining in the business.
However, by understanding exactly how redundancy works and what legal obligations you have as an employer, you can ensure that your business stays compliant and that everyone – both employees and yourself – have all the information they need to move forward with their lives after redundancy at work has occurred.
It’s all about balance
As a business owner, you probably know one of the most difficult parts of the job is balancing the business needs with those of your employees.
When faced with redundancy situations, it’s important to understand how redundant workers are protected, as well as what some of your responsibilities are as an employer when it comes to redundancy and dismissal.
If you’re not sure how it all works, there’s no need to worry; we’ve got you covered with this guide on how redundancy works in detail so you can ensure compliance and fairness in everything that you do.
What Is a ‘Redundancy’?
Redundancy is when a job or jobs are no longer needed in your business. Note that this is about a job rather than a person.
You cannot make a person redundant if the job still exists, or you need to recruit a backfill. You can dismiss someone for poor performance, but that’s a performance issue (and you must follow a performance management process) – and it’s not redundancy.
So beware, if you put someone else in the same role after you’re made someone redundant, you could have a case for unfair dismissal!
Why does redundancy happen?
Redundancy can occur for a number of reasons. It may be a need to cut costs, because the employer is insolvent, some new technology makes a job or jobs obsolete, or you need to re-structure the business to reflect changing customer needs. A restructure will stray into redundancy if the requirement for people to do a particular job is eliminated and they cannot do another job instead.
Do I need to consult with those affected by redundancy?
Absolutely! You must consult with your employees before finalising any redundancy proposals. If you do not hold genuine and meaningful consultation before making redundancies, employees can claim to an employment tribunal for unfair dismissal.
Who is selected to be at risk of redundancy and why should be clearly explained to those employees affected with no prejudiced reasons. You should meet with each affected employee to explain why the situation has arisen and the redundancy process that you will follow with the different options available to them. You will need to follow this up in writing. Documenting everything is key.
How do you consult with your employees?
There are rules for how long individual consultation should last depending on the number of employees that are being placed at risk.
If your making up to 19 redundancies the consultation period can be decided by you as long as meaningful consultation takes place, usually this is a minimum of two weeks. If you are making 20 or more employees redundant then collective consultation should take place with elected employee or trade union representatives. But you should have redundancy policy in place with those rules.
Consultation should be meaningful and you should be able to show you have genuinely considered any suggestions or points made by each employee, even if you do not accept them. Your consultation meeting notes can demonstrate this, any points raised, considered and then answered.
There should also be an appeals procedure in place in case employees disagree with the decision or think they’re been unfairly selected. Again, this should be in your redundancy policy.
During that consultation period, you will need to set out the process that you will follow and the different options to those affected by redundancy.
How do I announce redundancies?
Let’s start at the beginning. You need to develop a clear and simple communication strategy that delivers a clear and consistent message based on the business reasons for redundancy.
This needs to clearly articulate that you are entering into a consultation process and for how long you envisage this to be. It’s never easy, for anyone, so prepare and practice and also be compassionate, understanding and supportive in your approach.
You might want to signpost those affected to resources that can help them. You obviously need to brief those who being placed at risk but also consider how and when you brief the other employees as word will quickly spread, and it’s better that they hear the reasons why from you. It can be an unsettling time for those not at risk as well.
What Selection criteria can be used when selecting employees for redundancy?
If there are to be fewer of the same positions available (may be due to downsizing) then you will need to undertake a selection process – and communicate that during your consultations. You need to be clear on what basis you propose to make that selection.
This may be based on historic performance, skills, absenteeism, sickness levels, or disciplinary record but be careful of using “last in, first out” as if this is used on its own it could be age discrimination if it means only young people are being made redundant. It must be evidence-based, so for performance, you should use staff appraisals. You might also consider asking for volunteers at the start of the process.
Treat people equally
It’s important to keep clear records and ensure that your selections are made fairly and objectively. You must not be seen to select for redundancy based on age, gender, or gender reassignment, race, disability, marital status, sexual orientation, religion or belief, maternity, or any other factor that may leave you open to allegations of unfair dismissal.
What happens in a restructure?
If it is a restructure, you may offer an alternative role in the business; there may be another similar role or a newly created role that they can do with or without some training. You are able to offer a new role on a trial basis (usually a 4 week trial); for them to assess if it’s the right role for them.
At the end of that period, you or they are able to make an assessment whether they are effective and happy with the role. Again, your business should have clear policies and procedures, this time for trial periods and how performance is assessed.
Another option is voluntary redundancy. Voluntary redundancy is an option where you offer your employee(s) a fair financial package, or incentive, to end their employment with you.
Offering voluntary redundancy is, often, viewed as a more positive move from an employer than simply enforcing redundancy onto the staff. It is more consultative and has a less damaging effect on a company’s reputation when employees choose of their own free will, to put themselves forward.
Why is voluntary redundancy good?
It can eliminate disagreements and bad feelings and is far less devastating to overall morale than compulsory redundancy. You aren’t seen to be secretly plotting and choosing which employees stay and which must go! You are also likely to avoid any unfair dismissal claims.
Like everything, it’s about balance. Whilst voluntary redundancy is probably a better option, just be aware that the staff with most to gain financially are often the ones that choose to go. So, when it comes to redundancy payments they are likely to be higher than if you went with a compulsory redundancy strategy.
Again, be careful. As an employee, you have the right to refuse a volunteer for redundancy if they are essential to the business, but you need to be clear on the reason why you are refusing a volunteer. Discrimination can be alleged by those who are ‘forced’ into redundancy where offers of voluntary redundancy from other employees are refused.
Do I have to give notice before making someone redundant?
Following the consultation process, you must identify which “roles” you intend to remove and have a sound justification as to why.
Those you select for redundancy must be given a notice period before their employment ends. The statutory redundancy notice periods are:
- At least one week’s notice if you have been employed between one month and two years;
- One week’s notice for each year if employed between two and 12 years
- 12 weeks’ notice if employed for 12 years or more
However, your contract of employment could have set out longer notice periods particularly for key staff, if this is the case the contractual notice must be applied.
Do those made redundant need to work their notice?
Employees are contractually required to work their notice unless you decide otherwise. Keeping people on to work their notice can sometimes be disruptive and have a negative effect on other employees. You may:
- Terminate their employment immediately – in which case you must give them the payment for all of the pay you would have received during the notice period – usually a lump sum
To do this you must have a payment in lieu of notice clause in your employment contract. This means that you can end their employment contract with no notice, but you must pay them for their notice period.
- Alternatively you may decide the employee needs to work their notice period to hand over key information to others.
They may also want to say their goodbyes and see this as a more respectful exit if they have a lot of service. They may choose to take some holiday and work shorter weeks during their notice period to ease themselves out.
Once an employee has been confirmed as being made redundant, if they have over 2 years service (by the end of the notice period) and are working their notice period they have a legal right to reasonable time off to look for another job.
As an employer you need to pay 40% of one week’s pay for that time off, e.g., an employee who works a 5 day week and take 4 days off during their whole notice period would be paid for 2 days.
Who Pays Redundancy Pay?
You do. When an employee is being made redundant, they are entitled to redundancy pay. This is an amount of money which has been set out in your employees’ contract or by law.
The legal minimum is called ‘statutory redundancy pay’. Your contracts of employment or policies will need to be clear on whether you pay just ‘statutory redundancy pay’ or additionally to that ‘contractual redundancy pay’ – extra pay that your contract says employees are entitled to, on top of the statutory redundancy pay amount.
Contractual and Statutory redundancy pay is not taxable or subject to NI deductions if it is under £30,000.
For each full year someone has worked for you, they get:
- up to age 22 – half a week’s pay
- age 22 to 40 – 1 week’s pay
- age 41 and older – 1.5 weeks’ pay
If they turned 22 or 41 while working for you, the higher rates only apply for the full years they were over 22 or 41.
The limits to how much money you’ll need to pay are:
- the maximum weekly amount is £544 – even if the person earns more per week
- you only pay redundancy for a maximum of 20 years’ work (for example, if they’ve worked at your job for 23 years, you’ll only need to pay for 20 years)
Be aware, you can refuse to pay your redundancy pay if someone turns down a suitable alternative job offered by you without a good reason.
Finally, you should pay your redundancy pay on the date your employees leave your employment, or an agreed date soon after.
What about non financial benefits?
As an employer, you may wish to consider other non-financial benefits as well as financial payments as part of a wider redundancy package.
Making someone redundant is not a particularly pleasant experience and as an employer you can mitigate this by offering assistance with re-training, CV writing or assistance to find another job.
Nothing shows your true colours as a caring employer– to both those being made redundant and the remaining workforce – then going the extra mile!
Remember you also have to pay any outstanding holiday to an employee being made redundant. This would be any holiday accrued to the end of their notice period which has not been taken that year.
If an employee has taken more holiday than they have accrued during the holiday year you can deduct this holiday but you need to advise them the amount being deducted and why. Also check your holiday policy and / or contract on the rules you have set out to do this.
Could An Employee Take Me To a Tribunal Over Unfair Dismissal?
Yes. But there is insufficient grounds for unfair dismissal as long as
- There was a genuine need to make redundancies
- You followed a fair procedure, consistent with your redundancy policy for consulting the workforce and selecting people for redundancy
- The decision to select was fair and you made reasonable efforts to look for alternative employment elsewhere in the company.
That’s why following the process we have set out above is so key.
Make sure that you have an appeals process. An employee can challenge your redundancy if they have worked for you for at least 2 years and they think it wasn’t a genuine redundancy reason or you didn’t follow a fair redundancy selection process.
As long as you have done everything compliantly, any appeal will not hold up neither will any subsequent tribunal claim.
Can I Change My Mind After Offering Redundancies And Decide Not To Go Ahead With Them?
Once the notice of redundancy has been issued to an employee, it is legally binding and cannot be unilaterally withdrawn by the employer, even if the employee is still working out their notice period. This can only be changed by negotiation and consent.
Need help with redundancy in your business?
Redundancy is hard. It’s hard on your business, your employees – and on you. Done right, it can remove some of the stress and everyone can move on with their lives.
If you need some expert help from a HR Consultant and require guidance on the best way to handle the process or how to plan an organisational restructure – we are able to help.
Navigating this tricky time must be done right for your business and employees right from the start of the process – so let’s make sure it is.
For a free consultation, please get in touch.