Sometimes, an employer may need to reduce the size of their workforce. One method they might consider is making them redundant.
Redundancies should only be used in a correct manner. Meaning, employees must receive all their legal rights from start to end.
If an employer neglects any of these steps, they could end up facing unfair dismissal claims.
In this guide, we'll look at what redundancy is, what the law covers, and how to let employees go in the proper way.
What is redundancy?
Redundancy is a type of dismissal used when a business needs to resize its workforce.
It's usually used to manage overstaffing or financial issues in a business.
Reasons for a genuine redundancy include:
- The employer has stopped (or will stop) running their business.
- The requirements of a specific job aren't needed or no longer exists.
- The location used for a specific job isn't needed or no longer exists.
Every employer should take reasonable measures to avoid redundancy. Meaning, it should only be used as a last resort.
What are examples of redundant situations?
There are many reasons why staff may be made redundant. Let's look at a few more examples of genuine redundancy:
The need for the worker has stopped or isn't required anymore
An employer may initiate a redundancy when a job role isn't needed anymore. The employee may have been chosen for this specific job due to their high skills or expertise.
But now, the work is no longer needed. Maybe the business is running well, so the employer doesn't require as many people to do the same job.
It would matter if the employee is performing other tasks. If their specific employment contract terms no longer exists, they could face being made redundant.
The business has a new system in place
An employer may decide to start a new business process or system. Because of this change, the employee's job is no longer needed anymore.
The change doesn't always automatically make the employee redundant. This only happens when the new system is the direct cause for dissolving their job.
For example, the employer may introduce new equipment to do the same job as the employee, but it’s done in a more efficient way.
The need for the job no longer exists.
In some cases, an employee becomes redundant because there's already enough people available to do their job. This would be decided throughout a consultation process, as other employees may be capable of covering the work.
This could lead to the employer having too many people for the job – making the employee redundant. But they can’t be made redundant, as this could lead to an unfair dismissal claim.
The business was transferred to another employer.
Sometimes, an employer may decide to sell their business to a new employer. In this situation TUPE might apply, take a look at our guide to learn more.
During the move, the new employer may decide to initiate redundancy procedures. In these instances, they need to prove that the move wasn’t the main reason for making the staff redundant.
Throughout the transfer, most employees are protected by TUPE laws and regulations.
What is a voluntary redundancy?
A voluntary redundancy is when an employer asks an employee to consider resigning from their role. Or the employee could volunteer themselves for personal reasons as part of a wider redundancy consultation.
An employee may choose to take voluntary redundancy for a number of reasons. For example, they believe the redundancy payment amount is compensatory. Or they wish to pursue alternative employment so are willing to leave their current role.
When an employee volunteers, they're often given a redundancy pay or other benefits in compensation. Whilst they can negotiate the terms, they cannot refuse redundancy situations altogether if applicable.
What is collective redundancy?
Collective redundancies are when an employer makes 20 or more employees redundant (within a 90-day period).
Collective redundancies are often used for a number of reasons. The employer's business may need to shut down the location of one establishment. Or they might need to consider downsizing their workforce to avoid financial issues.
There is a proper legal process for collective redundancies that the employer must follow. For example, staff who are being made redundant are legally allowed to bring an employee representative to the consultation meetings, although this applies to all redundancies.
If an employer breaches redundancy contract terms, employees could raise unfair dismissal claims to employment tribunals (ET). Along with paying a protective award, the employer could also suffer from business losses and reputational damage.
What is the law on redundancy in the workplace?
In the UK, there are laws that covers redundancy. However, there is relevant legislation linked to it.
An employer cannot make someone redundant for select reasons. For example, if an employee is on maternity leave or is part of a union, they can still be made redundant but this can’t be the sole reason for the redundancy. This could lead to an unfair dismissal, or discrimination claim.
If any part of your redundancy process is discriminative (like the selection part), it could breach laws like the Equality Act 2010. An employer cannot discriminate against staff based on nine protected characteristics:
- Gender reassignment.
- Pregnancy and maternity.
- Religion and belief.
- Sexual orientation.
If an employment tribunal finds you liable, they could force you to pay an expensive compensation to any affected employees. During the tribunal process, the employer may also suffer from low staff morale, productivity, and engagement.
All this leads to the importance of handling redundancies with care. If you do, you'll be able to manage any potential disruptions for your remaining staff and business.
What are other employee rights during redundancies?
Depending on the individual, employees may be entitled to further legal rights during redundancy. For example:
- Notice period redundancy: Redundancy is considered as a form of dismissal. So, employees are legally entitled to a statutory or contractual notice period during this time.
- Paid time off to look for work: Employees with at least two years' service are legally entitled to paid time off to look for new jobs.
- Tax-free redundancy pay: If an employer offers statutory or contractual redundancy pay that's less than £30,000, it's considered tax-free. This includes paying National Insurance (NI) or other tax deductions.
- Holiday pay: An employee may have accumulated holiday entitlements during a redundancy process. If their employer owes holiday pay, they need to pay it or let them use it before they're made redundant. Holiday pay is subject to tax deductions.
- PILON: During a redundancy notice period, an employer may pay an employee to leave earlier (known as PILON). Be aware, PILON is subject to tax deductions in the same way as other termination payments.
- Maternity leave pay: If an employee is made redundant during their maternity leave, they should receive redundancy pay based on their normal pay.
What is statutory redundancy pay?
Statutory redundancy pay is a financial payment that some employees are legally entitled to when they're made redundant.
As of April 2022, the most statutory redundancy pay an employee can receive is £571.00 per week. (That's even if they earn more than this). Overall, they can claim up to £17,130 as overall statutory redundancy payment.
How do you calculate statutory redundancy pay?
The statutory redundancy payment calculation is based on a few factors. This includes an employee's age, length of service, and weekly pay (before tax or other money deductions).
Now, let's work out how much statutory redundancy pay an employee could get. For every complete year, an employee may statutory redundancy pay of:
- ½ week's pay: If they're aged between 18 and 21.
- 1 week's pay: If they're aged between 22 and 40.
- 1½ week's pay: If they're aged between 41 and 64.
For example, an employee (aged 50) has worked at a business for 10 years and earns £500 as their weekly pay. After being made redundant, they'll receive 1½ week's pay - which is £7,500 as overall statutory redundancy pay.
What is the difference between statutory and contractual redundancy pay?
Employers need to legally pay statutory redundancy pay if they make an employee redundant if they have two years of service.
Contractual redundancy pay is a payment an employer agrees to pay when making an employee redundant. It's usually agreed to within an employment contract or staff handbook.
Contractual redundancy pay is usually additional money given on top of statutory redundancy pay and could be given to short-service employees. But be aware, it's illegal for contractual pay to be lower than the statutory redundancy pay amount.
How to manage redundancy in the workplace
It's important that every employer manages their redundancy process with care and compassion. Redundancies can bring about all kinds of troubles - for you and your employees. So, make sure you follow the correct, legal method when letting people go.
Every formal redundancy procedure should cover nine major areas. These include:
- Identifying the pool for selection.
- Seeking volunteers.
- Consulting employees.
- Selection for redundancy.
- Suitable alternative employment.
- Appeals and dismissals.
- Redundancy payment.
- Counselling and support.
Let's look at each category in more detail:
Before taking any steps, an employer should try to avoid making redundancies in the first place.
It should only be used when there is no other choice - for the individual, as well as the business. Instead of redundancy, think about using alternative methods or plans like:
- Freezing your recruitment process for a short time.
- Stopping or reducing the use of overtime.
- Offering early retirement (whilst avoiding age discrimination).
- Retraining or redeploying employees.
- Offering lay-offs or short-time working.
Every employer needs to be cautious when using any of these steps. If done wrong, you could end up breaching an employee's employment contract. So, take extra care and plan these steps out fully.
Identifying the selection pool
If you decide to go with redundancy, you need to think about the employees themselves. You could be making one employee redundant; or a whole department of workers.
The next step in your redundancy process is to identify the selection pool. This group is made up of employees who could face redundancy for a number of reasonable points. For example:
- They perform similar work to other employees.
- They work in the same department as other employees.
- Their work has reduced, stopped, or is expected to stop.
Depending on the situation, an employer may choose people from several redundancy selection pools. When doing so, you need to make sure you consult them properly.
Before you make anyone redundant, try to seek out anyone who may be willing to volunteer themselves.
Voluntary redundancies can instantly help employers with overstaffing or financial issues.
But remember, these employees must not feel pressurised or manipulated into compulsory redundancies. They should decide for themselves and volunteer on their own.
Once you've got your list of employees, it's time to hold your redundancy consultation meetings.
At the consultation, employers need to answer the following questions:
- What is the reason for the redundancy?
- How many proposed redundancies will take place?
- How many employees will be affected?
- What does the redundancy procedure include?
The employer should have meetings with everyone at risk of redundancy. A meaningful consultation process includes offering as much information and support as possible.
If 20 or more employees are being made redundant, you need to also hold collective consultations. This involved inviting trade union and employee representatives.
You'll also have to inform the Redundancy Payments Service about these affected employees. They act on behalf of the Department for Business, Energy & Industrial Strategy (BEIS).
Selection for redundancy
When the consultations are done, the employer needs to specifically choose which employees are being made redundant. Start with anyone who volunteered before moving onto your redundancy selection pool list.
When selecting employees for redundancy, think about their:
- Length of service.
- Attendance records.
- Performance and disciplinary reports.
- Skills, qualifications, and capability.
These can be used as a starting point, but you may need to take a different approach for each client. For example, you wouldn’t look at the attendance record for a employee who was absent due to disability or pregnancy.
Sometimes, an employer may choose to use the 'last in, first out' method. Whilst this method isn't illegal, it can lead to discriminatory acts.
Suitable alternative employment
Once you've accumulated your selection list, you can choose to offer some employees suitable alternative employment instead of making them redundant.
This might be a new position in a different department, or a brand-new role at a different location. If they accept the suitable alternative role, employees should be given a four-week trial to settle in.
If the employee rejects the new role, they may be considered for redundancy. Although this can depend on the reason for their refusal. For example, if they are refusing the new role due to a change in location, you have the option of making them redundant and offering them redundancy pay.
If an employee is looking for a new job elsewhere, they should be given reasonable time off to do so, if the redundancy dismissal is confirmed. But only those with two years' service are entitled to paid leave.
Dismissal and appeals
Once the employer has finalised the redundancy list, they need to start with their dismissal process.
The employer should hold further meetings with the selected employees to go over any ongoing concerns.
You need to inform employees about redundancy dismissals through written notices. This will outline the whole redundancy process and where it leaves the affected employees now.
The employer will then provide the selected employees statutory notice periods. Or a notice period that they're contractually entitled to - whichever one is longer.
Once the affected employees have been given their notice, their employer must offer them redundancy pay.
This could be the minimum statutory redundancy payment or contractual redundancy payment - whichever one is more.
Along with redundancy payments, you need to pay them any other money benefits you owe them. For example, remaining wages, commission bonuses, or holiday pay entitlements.
Employees won't be able to claim money through the Redundancy Payments Service, unless their employer goes into insolvency.
Counselling and support
When employees are made redundant, it could alter their professional and personal life. It could affect their mental health, as well as their economic state.
Every employer has a legal duty to protect their staff's wellbeing throughout their employment. So, offer counselling referrals or access to employee assistance programmes (EAPs).
You can even offer external support like financial advice sessions. Or help them with finding a suitable alternative job that matches their work capabilities.
How do you support remaining employees after redundancy?
A redundancy can completely turn an employee's life upside-down. But they also affect employees who weren't selected, too.
Of course, some might argue they got a better outcome than others. But it doesn't mean they're completely immune to the aftermath of what redundancies bring.
An employer can help support remaining employees by:
- Giving them detailed explanations on why the redundancies were made.
- Presenting what the future looks like for them and the business.
- Making sure managers know how to keep normal operations going.
Is redundancy the same as lay-offs or short-time working?
No, redundancy isn't the same as lay-offs or short-time work.
A lay-off is used when an employee is given no work for a set time. Lay-offs can last for a couple of weeks; others for a single day. Short-time working is when an employee's work hours have decreased - but not completely stopped.
Both of these are temporary measures as there's always an aim to bring employees back to work. Whereas redundancy is permanent, as it ends with a job being terminated.
All three versions should be clearly outlined in every employment contract or staff handbook. That way, employees are aware of what they mean and when they're used.
Get expert advice on redundancies with Croner
For any employer, redundancies always bring about complications. But it's crucial that you follow every respectful and lawful step when letting employees go this way.
If an employer fails to follow the proper redundancy pay and process, they could end up facing discrimination claims and paying compensation.
But you don’t need to deal with this alone. Croner offers expert legal advice on workplace redundancies. Our team of HR advisors and qualified solicitors are here to help.
Need more advice on your redundancy procedures? Speak to a Croner expert in regards to any HR or UK law issue on 0800 470 2589.
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