31 Jan 2021
No business is immune to hard times, and as a business owner, you may face making redundancies in your company.
Statutory redundancy is a difficult situation for both employer and employee.
As an employer, you need to ensure fair selection, which is time-consuming and intensive. There are many employment laws to consider during dismissals, so it’s essential you get everything right.
For the employee, losing their job is difficult regardless of any payout they receive. This can change their life plans and any career goals they had with the company. It can also cause emotional distress when chosen for this against their will.
However, you can offer financial incentives for an employee to resign with, making the process more amicable on both sides. This is a voluntary redundancy. It can be an opportunity to scale back without damaging your reputation or unsettling employees.
Read our guide and get yourself up to speed on this more agreeable alternative.
What is voluntary redundancy?
It is a package offered to employees when you don’t want to resort to compulsory redundancy. Here, an employee will volunteer for redundancy rather than having it forced upon selected employees.
The purpose of this is to make voluntary redundancy more attractive to employees. This can avoid the arduous process of picking individuals to make redundant.
If too few people volunteer for redundancy, compulsory redundancy may still be necessary for some people. But the fewer compulsory redundancies made, the lower the number of potential legal claims and the happier the workforce will be.
Voluntary redundancy vs compulsory redundancy
The fundamental difference between voluntary and compulsory redundancy is who makes the choice.
For compulsory redundancy, the employer decides who becomes redundant. But, with voluntary redundancy, the employee decides if they want voluntary redundancy.
As it involves an employee taking a voluntary redundancy package, it usually involves a greater payout than compulsory redundancy. Employees can also negotiate their voluntary redundancy notice period and benefits.
Unlike compulsory redundancy, an employee can refuse a voluntary package if the employee doesn’t think it is good enough. However, they will lose the additional voluntary redundancy pay. Law still entitles them to statutory redundancy pay though.
With voluntary redundancy, however, you can be selective over which applications you’ll accept, so as to protect yourself in situations where losing particular skills and experience would place the business at even further detriment.
Pros and cons of voluntary redundancy
If you’re considering implementing redundancies within your business, then you must know the pros and cons of voluntary redundancy.
The pros are:
- Cost-saving: reducing your headcount will lower your costs and can save your business. With voluntary redundancy, you speed up the process and reduce the time paying wages you can’t afford.
- Avoiding compulsory redundancy: It can be a tough decision to forcefully make your staff redundant. It might be easier on you, as the boss, when your staff self-selecting over redundancy.
- Benefits morale positively: seen as a positive by employees in the workplace as it is more consultative rather than simply forcing it onto the staff.
Whereas the cons are:
- You risk losing skilled employees: the best employees often offer themselves for voluntary redundancy, as they will usually earn the most from it. While it’s not mandatory to accept, it may have adverse effects to refuse.
- Can be more costly: The staff with most to gain financially are often the ones that choose to go. So, when it comes to calculating redundancy pay, you may find payments are higher than if you went with a compulsory redundancy strategy.
- Risk of discrimination claims: When employees put themselves forward and are then either chosen or not for redundancy, there is a risk that you might be open to claims of discrimination. It’s important to avoid this by keeping clear records and ensuring your selections are fair, objective, and are not influenced by a protected characteristic.
- Negative effects on those not selected: employees who are not selected may become demotivated. Those who volunteer may also surprise you, making their future intentions uncertain to you.
How does voluntary redundancy work?
Employment law on voluntary redundancy process still requires you to follow a proper procedure. Many stages of a voluntary redundancy process mirror those of a compulsory redundancy process – you must ensure there are no alternatives, there are good reasons for voluntary redundancy and you take care not to discriminate.
Ensure you follow the voluntary redundancy rules when you carry out the process:
- Ensure there are no alternatives to redundancy: make sure that redundancy is essential and that no other solutions, such as reducing benefits or working hours, exist.
- Offer voluntary redundancy to all staff who have roles at risk of redundancy: if you’re faced with a redundancy situation, you should notify staff of the need to make redundancies in writing and ask for any volunteers to come forward.
- Consider if you will offer an enhanced voluntary redundancy package: it’s not uncommon for businesses to offer enhanced payments and packages, over and above the statutory redundancy entitlement, to incentivise staff to volunteer for redundancy. If you chose to do this, make your proposition clear from the outset.
- Avoid discrimination: it’s always advisable to offer voluntary redundancy to all the affected roles regardless of any protected characteristic. Failing to do so may appear discriminatory.
- Still treat selected staff member as redundant, not as someone who quit: you must still treat a voluntary redundancy as a redundancy, rather than a choice to quit. This means you must make sure the employee receives redundancy pay (if eligible), and their notice period.
Need to make some redundancies?
Dismissals and redundancies are stressful for you and your employees, so get in touch with us if you’re struggling. We can provide expert advice on how to end the matter amicably. Get in touch on 0145 585 8132
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