04 Dec 2018
Redundancy is a form of dismissing your employees. In most cases, redundancies can happen when you decide to close down your business or if you no longer need certain employee roles.
You could also make an employee redundant if you want to reduce your workforce because your need for work of a particular kind has been reduced or intend to move the business to another location.
Employees have statutory rights and responsibilities. For example, before making them redundant, you must first try to find a suitable alternative role within the company. They can try out the new role for up to four weeks without giving up their right to redundancy pay.
What is the statutory redundancy pay?
Statutory redundancy pay is the legal minimum your employee should receive after redundancy. Employees are entitled to statutory pay if they have been in your employment for two years or more.
How much is statutory redundancy payment?
To calculate redundancy payment, you base it on the employee’s age, weekly pay, and the number of years in the job.
Employees will get:
- Half a week’s pay for each full year they were under 22.
- One week’s pay for each full year they were 22 or older, but under 41.
- One and a half week’s pay for each full year they were 41 or older.
It’s important to remember that the employee’s length of service is usually capped at 20 years. And the weekly pay is capped at the statutory rate which is currently £508 per week but likely to go up in 2019.
Reasons for redundancy
There are different reasons an organisation might have to go through redundancies, the only rule is that it must be fair.
Some examples of fair reasons for redundancy
- Introduction of new systems such as software or machinery, making certain roles irrelevant.
- Reducing costs by eliminating certain services or products.
- Business closing down or relocating.
Some examples of unfair reasons for redundancy
- Marital status.
- Sexual orientation.
- Health & safety activities.
There is a selection process in cases with more than one employee affected by redundancy.
To fairly select, you first create a pool of those who are ‘at risk’ of redundancy, looking at the job roles that are no longer needed, because the demand for work has stopped or decreased, and then include those who do similar roles or where jobs are interchangeable.
During consultation, you create a list of objective selection criteria and, after consultation, you apply these to all those who are at risk – scoring the employees against the criteria. The lowest scorers are then selected.
The criteria can’t be discrimination – meaning last in, first out should usually be avoided because this can be discriminatory on age. Instead, things like disciplinary, absence (minus any disability/pregnancy absence), qualifications, skills etc.
Redundancy Payments Service (RPS)
The Redundancy Payment Service exists to speed up the process of paying ex-employees when your organisation becomes insolvent. Pending payments, get addressed faster than they would be if your employees had to wait for your assets to get released.
Once you have identified a potential redundancy situation affecting 20 or more employees within a 90-day period, you should fill out form HR1 to notify RPS of potential redundancies.
You’ll have 30 days before the first redundancy to submit the form if you’re proposing to make 20-99 employees redundant within a 90-day period.
If you’re proposing to make 100 or more employees redundant within a 90-day period, then you have 45 days before the first redundancy to submit form HR1.
Consulting employees is an important aspect of dealing with redundancy situations in your organisation. Redundancies made without employee consultation could be an unfair dismissal. This could open you up for unfair dismissal claims at an employment tribunal.
As an employer, you must follow collective consultation rules if you are making 20 or more employees redundant within a 90-day period.
There are no set rules to follow when making fewer than 20 employees redundant. But, it’s still advisable to consult with your employees or their representatives.
During these consultations, you must discuss the redundancy plans with your employees and their representatives. Discussions should also involve taking suggestions from employees to avoid being made redundant.
Other discussion topics during the consultation includes:
- The reasons for the redundancies.
- The number and categories of employees involved in the redundancy.
- The number of employees in each category.
- Details of how you plan to select employees for redundancy.
- How you plan to carry out redundancies.
- How you’ll work out redundancy payments.
How much notice for redundancy?
Give your affected employees enough warning in advance. The statutory notice period depends on their length of service.
- One week’s notice if employed between one month and two years.
- One week’s notice for each year if employed between two and twelve years.
- 12 weeks’ notice if employed for 12 years or more.
If you have longer notice periods set out in your contracts of employment, then employees need to be given their contractual notice or they could bring a claim for wrongful dismissal.
Contact us for help with redundancy issues. Speak to one of our dedicated employment law specialists for free on 0800 145 3385.
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