When faced with a significant reduction in sales, the loss of a major contract, or budgetary cuts, it is down to the employer to react accordingly to rectify the situation.

Employers will look for alternatives before reaching a decision. However, dismissals and redundancies are part of life and for businesses who have exhausted all other possible solutions to try to get company performance back on track.

Before taking action, it’s important to consider the following questions:

  • How do you make redundancies?
  • What are your legal obligations to the employee?
  • Are there any alternative measures that can prevent redundancies being the only possible option?

Alternatives to redundancy


Redundancy should always be seen as the last option. Before making staff redundant you must decide whether there are any suitable alternative roles they could be placed into within your company, and anything else that might remove the need to make redundancies in the business.

As with all dismissals, employees have the right to appeal against the decision to make them redundant, and you should agree on a process by which any appeals will be heard.

Alternatives to redundancy include recruitment freezes, removing overtime, stopping incremental pay rises, reducing agency worker spend, or to review the terms and conditions of employment.

Often staff will agree to these suggestions if it lowers costs and therefore reduces the number of staff who need to be made redundant.

Discuss reducing maternity or sick-pay entitlement. Change the sickness policy so that the first three days of sickness absence are unpaid. These are ways to reduce staffing costs while avoiding the need for redundancies.

Voluntary redundancy


Employers could choose to offer a voluntary redundancy package to staff as a precursor to making compulsory or non-voluntary redundancies.

An enhanced redundancy package could encourage staff to leave in a positive way; it being their choice can have a huge impact on how they feel as a result of leaving.

Remember, ex-employees spread the word of their experience, so do consider voluntary redundancies. It is much better to have staff leave with a positive view of your company than the negative feelings associated with compulsory redundancy.

Compulsory redundancy


Compulsory redundancies take two standard forms:

  • A reduction in staffing numbers
  • The complete shutting-down of an organisation or function

If you’re closing down an entire function, you do not need to agree on selection criteria to identify those who will be made redundant, because everyone will be made redundant.

However, if you are in a position where you have to reduce numbers, and therefore select whom to make redundant, you must first clarify the criteria you will use to select staff. This could include disciplinary records, performance records, or applying a last-in-first-out approach.

Whatever you decide, you must ensure that your criteria doesn't discriminate against protective characteristics, such as disabled employees, employees on maternity leave, part-time workers, etc.

The dismissal will become unfair if you use these as a means of selection, and the employee might look to settle the dispute through an employment tribunal.

That’s why it’s crucial for the employer to remain fair and justified in their identified criteria for redundancy, so that it is based on tangible facts and evidence. Subjective or dubious reasons will be open to challenge and could come back to bite the employer further down the line.

Legal requirements


If the employer is making more than 20 employees redundant at the same time, there are legal requirements involved.

The business must first inform the government of its intention to make these redundancies and must take part in collective consultation.

This is done by notifying the Redundancy Payments Service of your intentions by filling in the HR1 form prior to starting consultation. Then, consult on the redundancies with employee representatives. These can be trade union representatives, or elected employee representatives; either way, these conversations will be a formal means by which collective consultation on the proposals can take place.

Consultation in this format must start at least 30 days before the dismissals for redundancies of between 20 and 99, and at least 45 days before the dismissals for redundancies of over 100 staff.

Notice of redundancy


Once you have highlighted those whom will be made redundant, you must give them notice of their redundancy.

For employers governed by UK laws, statutory notice periods apply for you to inform employees that they will be made redundant. This depends upon the length of service each employee has completed.

The required notice periods are (for employees with between one month and less than 2 years’ service):

  • at least one week’s notice, for employees with between 2 and 12 years’ service
  • one week’s notice for each year employed (up to 12)
  • and if employed for 12 years or more: 12 weeks’ notice

If you are making redundancies on a large scale, the best practice is to apply the maximum statutory notice to all employees (12 weeks) and for this timescale to be the length of your consultation process with staff to warn them of the impending redundancies.

Staff have a right to know why they are being made redundant, or why redundancy has become the only possibility. The business first needs to alert staff to alternatives, such as reducing their hours or taking a suitable alternative role within the company.

Redundancy payments


Redundancy payments are made up of two factors:

  • Statutory Redundancy Pay
  • An optional Pay in Lieu of Notice (PILON) payment

Statutory Redundancy Pay


This is payable to staff who have more than two years’ service at the point of redundancy, and can be calculated using the ready-reckoner available at Direct Gov and is currently capped at a maximum salary value of £475 per week. With regards to notice, you can either ask staff to work during this period or agree that they will be paid in lieu of notice, meaning they require no notice of their end-date and you pay them the value of their notice instead.

Pay in Lieu of Notice (PILON) payment


The value of the PILON is either the contractual notice period or a week’s notice for every year of service (up to 12 weeks), whichever is the greater. These payments are tax-free up-to £30,000. Anything beyond that is subject to tax.

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