As a business owner, you may be left with the tough decision of making some employees redundant. For all employers, this is one of the hardest conversations you'll ever have.
You must follow the correct redundancy process to ensure you make this difficult period as easy as possible for your employees. Failure to do so could be an unfair dismissal, with an employment tribunal claim being raised against you.
In this guide, we'll discuss what redundancy is, employee entitlements during redundancy, and how to manage them correctly.
What does redundancy mean?
Redundancy is a type of dismissal which is required when employers need to make their workforce smaller or when closing the business down for good.
If you need to make employees redundant in your business, you must understand when using redundancy as a last resort. You must ensure the redundancy is genuine and you act on the right side of employment law.
Examples of a genuine redundancy
Sometimes making redundancies is the only option for an employer. Here are examples of genuine reasons for redundancy:
- The employer's business is closing down.
- The work is no longer needed.
- The business is relocating.
You must understand your employee's entitlements and rights if they're being made redundant.
What are the employee rights when being made redundant?
Your employees (both full-time, part-time and workers) may be eligible for the following redundancy entitlements:
- Time off to find a new job.
- Consultation with you to discuss the decision.
- Option to move into alternative employment.
- Redundancy pay.
- A notice period.
When an employee is aware they're losing their job, one of their main queries will be if they'll receive redundancy pay.
What redundancy pay is available?
There are two types of redundancy payment you must provide your employees with:
- Statutory redundancy payment: This is what the law states employees are entitled to.
- Contractual redundancy payments: This is any extra money, which is stated on their employment contract.
Providing your employees with contractual redundancy pay can be seen as a positive for your company, as you are paying your staff what they deserve. Both these types of payments are paid by the employer.
Are all employees entitled to statutory redundancy pay?
Not all your employees will receive statutory redundancy pay. To be entitled, the following criteria must be met:
- They've had at least two years of continuous employment.
- Are a particular kind of worker (employee) - this includes part-time employees.
However, employees can also lose their right to this payment. For example, if they're dismissed for gross misconduct or if they find a new job before their current job ends.
As well as knowing who can receive redundancy pay, you must also know who isn't entitled.
Who isn't entitled to statutory redundancy pay?
Not all employees are entitled to statutory redundancy pay. As an employer, you must understand who doesn't receive this money:
- If they've worked for you for less than two years.
- If they're self-employed.
You may have employees on fixed-term contracts. You must understand their rights to redundancy pay if you decide to dismiss them this way.
Do employees on a fixed-term contract receive redundancy pay?
Employees on a fixed-term contract may be entitled to statutory redundancy pay if their contract isn't renewed and they meet the following requirements:
- Have had a fixed-term contract for two years or more.
- Have had a range of shorter contracts that followed each other, with the total adding up to two years or more.
Now we know who is and who isn't entitled to redundancy pay, you must understand how much an employer should pay following redundancy.
How much statutory redundancy pay can employees receive?
How much an employee can receive when they've been made redundant is based on their earnings before tax. It's also made up of the employee's age, weekly pay (up to £571 per week), and how long they've worked for.
Statutory redundancy pay amounts are as follows (for each full year worked):
- Up to the age of 22 years old: Half a week's pay.
- Between the age of 22 to 40 years old: One week's pay.
- From the age of 41 years old and older: One and a half weeks' pay.
Employees can only receive redundancy pay for a maximum of 20 years' work.
Can you make someone redundant whilst on maternity leave?
As an employer, you're legally allowed to make an employee redundant whilst they're on maternity leave. Any redundancy pay will be based on their normal pay.
However, you must never make someone redundant because they're pregnant or on maternity leave. This is automatically unfair dismissal and discrimination.
Are there notice periods for redundancy?
By UK law, an employer must provide their employees with a notice period before their employment ends. You must provide your staff with the correct notice for redundancies. For example:
- If employed between one month and two years: At least one week's notice.
- If employed between two and twelve years: One week's notice for each year worked.
- If employed for twelve years or more: Twelve weeks' notice.
Failure to provide the correct notice period is against employment law.
How to manage redundancies correctly
Telling someone they're being made redundant is never easy, so managing it correctly is vital. You must follow a consultation and selection process when deciding on redundancies:
- If you're looking to make 20 or more employees redundant (collective redundancy), you must hold a collective consultation. This consultation is used to create an agreement on how the process will be carried out.
- Decide fairly on who to dismiss (take into consideration standards of work and disciplinary records).
- Holding a discussion with the employee representative.
- Offering voluntary redundancy or changing working hours.
- Offering suitable alternative employment within the workplace.
- Offering employees voluntary redundancy.
- Providing any further counselling and support.
As an employer, you should be aware of the potential legal pitfalls you can fall into during this process.
Can an employee claim unfair dismissal following redundancy?
An employee may claim unfair dismissal if you make them redundant without good reason, for example, discrimination. Under UK law, the following are protected characteristics:
- Gender reassignment.
- Marriage or civil partnership.
- Sexual orientation.
You must always follow a fair redundancy process. If an employee feels they've been unfairly dismissed or unfairly treated, the last resort may be to make a claim to a tribunal.If you're unsure, you should always seek advice to avoid a claim being made.
Get expert advice on redundancy with BrightHR
As a business owner, making an employee redundant is one of the hardest decisions you'll have to make. Handling this matter correctly is vitally important.
Getting this process wrong can lead to an unfair dismissal claim being made against you to an employment tribunal.
If you need any advice when employees resign, we are on hand to help. Our BrightAdvice helpline. Give our friendly and helpful team a call on 0800 783 2806.