An employer’s guide to the redundancy process
Uncover strategies for managing the redundancy process with compassion and transparency to support affected staff in our comprehensive guide.
No employer wants to make redundancies.
Unfortunately, sometimes it’s just an unavoidable part of the world of work.
However, employers who follow a carefully constructed redundancy process and are mindful of employees’ wellbeing can safeguard their reputation, minimise the risk of legal claims and, most importantly, support their staff through a difficult time.
In this article, we’ll look at how you can make this process as fair, effective and compassionate as possible.
What is redundancy
Redundancy occurs when an employer shuts down their business or indicates plans to do so, leading to layoffs classified as dismissal by redundancy under the law. It also applies when the necessity for employees to perform specific types of work has decreased, is expected to decrease, or has entirely ceased. This situation can arise either across an entire organisation or at a particular location.
It’s important to note that redundancy is not related to an individual employee’s performance or conduct—this is not a case of letting someone go for poor work. Rather, redundancy is driven by the employer’s need to resize the workforce in response to changing business demands.
For a dismissal to qualify as a genuine redundancy, it must meet the legal criteria outlined in Section 139 of the Employment Rights Act 1996. For instance, if an employer dismisses an employee on the grounds of redundancy, then subsequently hires or promotes someone else to undertake the same job, that would not be considered a legitimate redundancy situation.
When planning the redundancy process, employers need to consider:
- How many roles are at risk
- What alternatives there might be
- Who will handle the process
Types of redundancy
A redundancy can occur for several reasons, such as:
- A reduction in work
- The closure of a site
- New technology or systems mean few workers are needed
With that in mind, let’s take a closer look at the two main types of redundancy: voluntary and compulsory.
Voluntary redundancy
Some employers may decide to offer workers a chance to apply for voluntary redundancy.
This approach can be less disruptive and at least gives employees some say over what is going to happen. In some instances, employees may actively look to take voluntary redundancy.
Voluntary redundancy can also remove the need for compulsory layoffs if enough staff members take voluntary redundancy, making the process easier for all concerned.
Compulsory redundancy
Compulsory redundancy occurs when specific employees are chosen for redundancy without seeking volunteers. In many instances, this will be because their roles are no longer required.
This type of redundancy is often used when voluntary redundancy doesn’t achieve the required staff reduction, and it requires a fair selection process to avoid claims of unfair dismissal and must follow proper consultation procedures.
While necessary in some cases, compulsory redundancy may have a more significant impact on overall staff morale, making staff feel uncertain about their future and anxious about the risk of redundancy in the future.
Calculating redundancy pay
An employee with two or more years’ service is entitled to a statutory redundancy payment.
The level of payment is calculated by a formula that uses the employee’s length of service (the maximum period used for calculations is 20 years), age and weekly gross pay (subject to a cap).
An employee will receive:
- Half a week’s pay for each full year they are under 22
- One week’s pay for each year they were 22 or older, but under 41
- One and a half weeks pay for each full year they were 41 or older
As of April 6, 2024, the current weekly pay cap is set at £643, which means the maximum statutory redundancy payment an employee can receive is £19,290. To assist with these calculations, the UK government provides a dedicated online calculator.
Some employers will offer an enhanced redundancy package in the case of voluntary redundancies to incentives staff to apply, applying their own formula to calculate the amount employees will receive once they are made redundant.
The legalities of redundancy
There are several key redundancy rules for employers in the UK to be aware of. Let’s take a look at the most significant.
Unfair dismissal
Any employee that has two or more years of service has a right not to be unfairly dismissed.
That means an employer must have a fair reason and follow a fair procedure. Redundancy is one of the potentially fair reasons to dismiss, providing a fair redundancy procedure is followed.
Some reasons for dismissal are automatically unfair. For example, employees cannot be chosen for redundancy because:
- They are a whistleblower
- They have raised a health and safety concern
If an employee is selected for redundancy for one of these reasons, they will be able to bring an employment claim as a result of the illegal action of their employer.
Similarly, selecting an employee for redundancy because they are on maternity leave or have recently returned from it would be considered automatically unfair.
Following a fair, open consultation procedure with all employees, regardless of their length of service, is essential. This gives the employee a chance to question and challenge their selection. It also gives employers the opportunity to engage with the employee about their concerns before making any final decision.
In broad terms, an employer will be expected to meaningfully consult with an employee about the redundancy proposal and explore ways of avoiding redundancy, for example by offering suitable alternative roles within the business.
Redundancy pool
An employer must ensure they correctly identify the employees at risk, known as the redundancy ‘pool’, and ensure a fair selection process is then undertaken.
Typically, this will mean the employer will draw up criteria, for example, based on performance, skills, and disciplinary record, which is reasonably objective and fairly score each employee in the pool before consulting with the employees about their scores – who should be given a chance to see their scores and challenge any they think are unfair.
The employer must ensure the criteria does not inadvertently discriminate on the grounds of protected characteristics – such as sexual orientation or sex – to avoid claims of discrimination.
Collective consultation period
If an employer proposes to dismiss 20 or more employees in a 90-day period at the same place, there is a statutory obligation to collectively consult and notify the government of the proposed redundancies. This should be done using a HR1 form.
The minimum period of the collective consultation process is 30 days when 20 or more (but fewer than 100) redundancies are proposed. This increases to 45 days where 100 or more redundancies are proposed.
The purpose of a collective consultation meeting is to provide specific information (laid out in legislation) and consult employee and/or trade union representatives on:
- Ways of avoiding redundancies
- Reducing the number of redundancies
- The consequences of redundancy
A failure to properly inform and consult will result in a protective award of up to 90 days’ pay for each affected employee. As you can imagine, the liabilities for an employer of getting the process wrong can be substantial.
Other redundancy rights
As a result of the redundancy process, an employee will also be entitled to notice pay. This is either the statutory minimum or what’s set out in their employment contract.
An employer also has a duty to make a reasonable effort to offer suitable alternative roles within their organisation as a way of avoiding making someone redundant.
The role must be suitable for the employee. For example, it is not reasonable to expect a manager to take step into a junior position. In addition to this, employees also have the right to reasonable time off to search for suitable alternative employment themselves during the notice period.
The redundancy process
Navigating the redundancy process can be challenging for both employers and employees. It’s therefore crucial to approach it methodically and transparently, thereby helping to ensure fair treatment, as well as compliance with legal obligations.
Below, we’ve outlined the key steps involved in managing redundancy to help you manage the whole process smoothly and effectively.
1. Prepare
Start off by identifying the departments and roles that will be affected by the redundancy proposal. You can then move on to determining the pools of employees involved and the number of job losses anticipated.
Additionally, you should compile a list of available alternative roles within the company and its group entities. Conducting a skills gap analysis can be beneficial here to identify suitable internal candidates for these positions.
2. Begin consultation
Initiate the consultation process by holding one or more meetings with the affected team or department.
This is an opportunity to engage employees by:
- Seeking volunteers for voluntary redundancy
- Discussing the proposed selection criteria
- Encouraging suggestions on how to avoid redundancies
Open communication during this stage allows employees to feel that their voice is both heard and valued in the decision-making process.
3. Individual consultation meetings
The next step is to invite affected employees to individual consultation meetings in writing, ensuring that a manager and a member of the HR team are present to guide the procedure.
Typically, there will be at least two meetings. The initial meetings should focus on discussing the redundancy proposal and exploring alternatives, while subsequent meetings can address selection criteria and scoring if a pooling situation exists.
Before the final consultation meeting, it is essential to remind employees of their right to be accompanied by a work colleague or union representative, clarifying that the meeting’s outcome may result in redundancy.
4. Decision and outcomes
If no alternatives have been identified, and the employer decides to proceed with the redundancy proposal, the next step is to formally notify the employee of the decision and issue a redundancy notice.
It’s vital that this communication is both clear and concise, outlining the reasons for the decision.
5. Right to appeal
Employers typically offer employees the right to appeal the redundancy decision once it’s formally been issued.
If an employee chooses to appeal, ensure that a more senior and independent manager handles the appeal meeting, thereby maintaining fairness and impartiality throughout the entire process.
Supporting employees through the redundancy process
In conclusion, while the redundancy is never easy to go through, it is essential for employers to navigate it with care, transparency and compassion. By adhering to legal requirements and best practices, you can protect your organisation’s reputation, minimise the likelihood of disputes, and provide much-needed support to employees facing significant life changes.