Compulsory Redundancy in the UK

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31 Jan 2021

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Compulsory Redundancy in the UK

Redundancies are never easy, especially if nobody in the company takes up the voluntary redundancy package offer.

If this happens, it means circumstances force you to make compulsory redundancies in order to keep the business running.

Not only is it a difficult situation to navigate personally, but it is also a legislative minefield. If you don’t follow the proper procedure you face costly employment tribunals for unfair dismissal.

The maximum amount that can be awarded as compensation for unfair dismissal is presently the statutory cap of £88,519, or 52 weeks gross salary- whichever is the lower. So you want to avoid this else you may be worse off than if you had kept the employee on.

Read more to find out all you need to know when making a compulsory redundancy. 

What is compulsory redundancy?   

It’s where a business can end an employment contract because of a change in business circumstances. This can be a variety of things, including a change in demand for services.

You can also call the process mandatory redundancy, but the more common term is “compulsory”. And there are two forms:

  1. A reduction in staffing numbers.
  2. The complete shutting-down of an organisation or function.

So, if you’re closing down a department, for example, then you don’t need to agree on selection criteria to identify individuals who’ll face redundancy.

That’s because everyone will face it.

But if you’re in a position where you have to reduce numbers and select who to make redundant, you have to clarify the criteria you’ll use for staff selection.

Keep in mind your reasons have to remain fair. But common examples can include:

The difference between voluntary and compulsory redundancy

If an employee volunteers to take a redundancy package, that's voluntary redundancy. But if you select employees for redundancy, we refer this to as compulsory redundancy.

Despite the voluntary nature, you still need to follow a fair procedure when making these employees redundant.

It gives employees more control over the outcome of not only their own career with you but their coworkers, as they will allow one less person to be made redundant from their role.

Voluntary redundancy vs compulsory redundancy

There are some advantages and disadvantages to each type of redundancy, and it may not always be the best option for you to offer voluntary redundancy packages at all.

Voluntary redundancy packages typically offer more in terms of financial compensation to employees than compulsory redundancy. So you may end up paying more to those employees, but the process will be shorter meaning less time paying their basic wages.

One of the points of compulsory redundancy vs voluntary is morale. If an employee chooses redundancy, it will affect morale less. On the other hand, the workforce may suffer if you make one of their colleagues redundant against their will.

How to conduct a legal compulsory redundancy

As this is a compulsory redundancy, and there will be no volunteers, you must go through a selection process. Either selection of a department or individual employees.

To ensure the process complies with redundancy legislation, you must be able to show:

  • Employees selected received their statutory redundancy pay (for those employed at least two years): when making an employee redundant law entitles them to statutory redundancy pay and any contractual payments.
  • You haven’t discriminated: it’s discrimination if you’re made redundant at least partly because of a protected characteristic.
  • Chosen employees for a fair reason: there are a number of reasons which qualify for automatic unfair dismissal, such as if the employee is a whistleblower.
  • Followed a fair process (for employees employed at least two years): hold at least one individual redundancy consultation with your employee to discuss redundancy. Here you must say how people were chosen, how long it will take and how to appeal.
  • That there’s a genuine need for the redundancies (for employees employed at least 2 years): where you have a genuine business reason to make an employee redundant.
  • Hold a group consultation: if you are making over 20 employees redundant, law dictates you hold a group consultation.
  • Offered another job or role if suitable (for employees employed at least two years): you must find ‘suitable alternative employment’ for employees who were made redundant on parental leave or those who have worked for you for at least two years.

Compulsory redundancy payments

Compulsory redundancy pay is often just the statutory payment and any contractual benefits. This is because you will usually offer any extra packages for those who volunteer for redundancy.

Only employees who have been working continuously for you over 2 years qualify for statutory payments. Employees who leave early or who turn down suitable employment offers from you will forfeit their right to this payment.

Law bases the statutory payments on the employee’s earnings before tax (called gross pay). For each full year they’ve 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

The maximum statutory weekly payment is £538. You use this weekly payment to calculate their statutory pay, and the maximum statutory payment is £16,140. The employee can only get redundancy pay for 20 years of employment.

Pay in Lieu of Notice (PILON) should also be taken into account. This is the value of this is down to contractual notice period—or a week of notice for every year of service (up to 12 weeks). Whichever is greater.

Get help with your redundancies

Making a compulsory redundancy is never easy. We help make the already difficult process easier by taking care of the legal issues, ensuring you don’t have a nasty fee to pay down the line. Get in touch today on 0145 585 8132

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