Redundancy in the UK is a daunting process for you to get right—and many employers struggle with its complexities.
You need to establish a strong business case and have a fair approach throughout. There are many employment laws to consider during dismissals, so it’s essential you get everything right.
And remember, if you’re here because of the stresses the COVID-19 pandemic is causing, there are alternative routes than dismissal. We have a coronavirus resource hub for businesses to guide you through these difficult times.
But if you have to make dismissals, below this guide we take you through the main steps in the process.
What is redundancy?
This is where you make dismissals across your business when you no longer need staff in certain roles.
Many businesses will make redundancies if there’s a serious need to keep the company afloat. And, unfortunately, that can lead to staff dismissals.
However, the process doesn’t simply involve ending employees’ contracts of employment. It’s a bit more complicated than that. So, let’s take a closer look.
Redundancy law in the UK
Legislation for this topic is in the Employment Rights Act 1996. As an employer, you do have the right to dismiss employees with redundancies.
However, you must provide a strong business case to go ahead with it.
The most important part to understand is you have to justify your reasons for making dismissals. As it’s the last resort and one the UK government wants you to avoid.
But if you have to go ahead, then you need to explain why. Common reasons for redundancy are:
- If your business has to close down.
- For cost-cutting measures after serious economic issues, such as a recession or pandemic.
- If a role is no longer a requirement due to technology.
- If your business moves location.
- When one business purchases another.
But your employees have redundancy rights. These are in the above Act and include the right to:
- A fair and objective redundancy process.
- Consideration for alternative options in your business. Including:
- Other roles in your business.
- A reduction in working hours.
- A reduction in pay (which you need to agree with employees, unless you already have a clause in their contract of employment.
- Consultations during the process. But only if there are more than 19 members of staff facing redundancy. But it’s still good business practice to hold them anyway.
- Time off to find a replacement job.
- The right notice period.
- The right redundancy pay.
Remember, it’s essential you respect your employees’ rights. If you don’t, it can result in a grievance complaint.
Or an unfair dismissal. For example, if you directly discriminate at work by making an employee redundant due to pregnancy, their religious beliefs, or due to their gender.
Indirectly discriminating can also lead to this outcome. For example, if you choose to dismiss staff as they have shorter service than older employees. That’s, essentially, ageism.
This could lead to a costly and damaging employment tribunal. So, follow a fair process to limit any risks.
The types of redundancy
There are two. And these are:
- Compulsory redundancy: It has two forms—staff reductions or a business shutting down entirely. Either way, it’s an essential requirement to keep your business operating and must go ahead.
- Voluntary redundancy: Where you offer employees the chance to volunteer for dismissal. This doesn’t guarantee they’re the employees you’ll ultimately choose. You can provide financial inventive with this approach to encourage employees to put themselves forward. And you need to follow the usual fair approach—staff must volunteer for a genuine redundancy.
Typically, the second option provides staff with some flexibility. For example, older employees may wish to retire early—and this can keep younger staff in their roles.
But either way, you have to follow the same process—including a selection criteria to, ultimately, choose the employees to dismiss.
The redundancy process—a quick overview
You’ll need to take the following approach—you can consider these redundancy rules to help you avoid legal issues or unnecessary complications:
- Make sure there’s a clear business case for your plans.
- Analyse your business and see if there are alternative options to redundancies.
- Create selection criteria to identify staff to dismiss.
- Hold consultations with the employees you chose. But, again, that’s if there are over 19 employees facing redundancy. But for good business practice, you should hold one anyway.
- Confirm the dismissals with a redundancy notice letter.
It’s essential during the above steps to keep your process fair. And one of the most important parts of your approach is to use appropriate redundancy selection criteria.
When making someone redundant, many businesses use a points system. You can identify measures such as individual skill set, disciplinary records, and quality of work.
You can then grade staff and, for the lowest scoring employees, these form the individuals who’ll face dismissal.
After which you must have a redundancy consultation with staff (if there are over 20 employees—that’s a collective redundancy). And do this at least twice to talk through your plans.
That bit is essential. If you don’t, your redundancies will most likely be unfair.
So, your redundancy consultation period should go as follows:
- If it’s a collective consultation (20 or more staff), then hold these within any 90-day period of the process beginning. Hold at least two.
- If there are fewer staff than that, there’s no legal requirement to do this. But it’s good business practice.
The final stage involves writing individual redundancy notice letters to each employee set to leave your business.
In that, you should detail the redundancy pay the employee will receive. Redundancy entitlement is available if the employee’s service with you is for two or more years. The amount is:
- Half a week of pay for each full year (if the employee was under 22)
- One week of pay for each full year (if they were 22 or older—but younger than 41).
- One and half week of pay for each full year—if they’re older than 41.
Also, you must explain what the redundancy notice period is—and when the individual’s final day with your business will be.
Frequently Asked Questions about Redundancy
Our clients ask loads of questions about redundancy, so we’ve answered some of the most common ones below.
Not found an answer to your question? Bright Lightning gives you the answer to thousands of employment questions in seconds.
Can staff be made redundant if the job still exists?
No, you can’t make someone redundant if their job still exists.
Redundancy can only happen if a job is no longer needed or you can’t afford to keep someone in the role.
You can rehire after redundancy, but you must show there’s been a significant change in business circumstance.
Do you have to work during the redundancy consultation period?
There’s no legal rule about whether you have to work during the redundancy consultation.
Some employers specify it in the employment contract. If it’s not specified, you’re likely expected to keep working.
What qualifies as redundancy?
There are only three legal reasons where you can make redundancies.
- The business has to close down.
- A department, or location, of the business has to close.
- You need to reduce the number of employees in a particular role.
A redundancy made for any other reason would be considered as an unfair dismissal.
Can you make yourself redundant?
Yes, you can, voluntary redundancy is when you nominate yourself to be made redundant.
Voluntary redundancy often comes with financial incentives, as it allows businesses to save time and avoid difficult decisions in the selection process.
Business directors can also be made redundant. To be entitled to redundancy, they must be considered an employee of the company. This means they must:
- Have an employment contract for a continuous two-year period.
- Work at least 16-hours each week, in a practical role rather than an advisory one.
We can help
Okay, you know the basics. But do you need extra support? Well, we’re always on hand to help. Get in touch on: 0800 470 2432.
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