Making staff redundant

There are many reasons why you may need to make staff redundant including closure or relocation of your company, a need to cut costs by reducing headcount or simply because some posts become unnecessary.

If you are forced to make employees redundant you have a duty to act fairly and there is a procedure you must follow which includes keeping the people who could be affected – or their representatives – informed.

Genuine redundancy

A genuine redundancy is one where the job the employee was doing ceases to exist – you can’t dismiss the employee and then take someone else on to do the work they were doing.

Alternatives to compulsory redundancy

Reasonable measures must be taken to come up with alternatives to compulsorily making people redundant. This could include asking workers to consider voluntary redundancy, early retirement or flexible working. Other steps could include:

• Getting rid of casual or contract staff – as long as they are not fixed-term or part-time employees.
• Putting a freeze on new recruits and filling vacancies with existing employees (they may need to be retrained to do this).
• Decreasing overtime or stopping it altogether.
• Short-time working or temporary lay-offs.

Alternative work offer

If possible you should offer an employee facing redundancy alternative work. Such an offer must be unconditional (ie, they shouldn’t be made to apply for it) and preferably in writing. It must be made before the employee's current contract ends and the new job must start straight after the end of the old job or within four weeks.

Those who accept the offer must be given a four-week trial period to see if the work is suitable, which depends on various factors, such as pay, status, location, working environment and hours of work.

If you and the employee agree the work isn’t suitable the employee may still be able to claim statutory redundancy pay (SRP) (see below). They may lose this entitlement if they are unreasonably refusing the job though.

Redundancy selection

When making compulsory redundancies, you need to establish a ‘selection pool’ - a section of the workforce the redundancies will be chosen from. You must then draw up redundancy selection criteria which can be applied to the redundancy list to narrow it down. This criterion must be objective, non-discriminatory and applied consistently. It can include factors such as:

• disciplinary records
• experience
• capability
• relevant skills and competences.

You might want to use a combination of criteria, perhaps using some kind of points system to get an overall score.

You can’t make people redundant on the basis of their gender, marital status, sexual orientation, race, age, religion/ beliefs or disability. If you do, then your redundancy becomes an automatic unfair dismissal. Any reason related to maternity/ paternity/ adoption leave is also off-limits, as are those to do with whistle-blowers, actions taken on specified health and safety grounds, lawful strikers and trade union membership.

You can opt for the ‘last in first out’ approach but be careful that you can objectively justify this and it doesn’t amount to indirect age discrimination as again those adversely affected might claim unfair dismissal.

Redundancy consultation process

Failing to consult your employees and/ or their chosen representatives during the redundancy process will usually render the redundancy dismissals unfair.

Collective redundancy consultation

If you plan to make 20 or more employees redundant in one place of work within a 90-day period you must:

• Notify the Department for Business, Enterprise and Regulatory Reform by letter or using form HR1.
• Consult with workplace representatives. If your employees choose not to elect representatives, you must give the relevant information directly to each individual.

Consultation must start at least 30 days before the first redundancy where there are 20-99 proposed redundancies; or 90 days in advance where there are 100+ proposed redundancies. If you fail to consult properly, affected employees may claim a protective award from an employment tribunal (a monetary award of up to 90 days pay).

At the start of the consultation, you must provide written details of:

• the reasons for redundancies;
• the numbers and categories of employees involved;
• the numbers of employees in these categories employed at the establishment;
• how you plan to select employees for redundancy;
• how you will carry out redundancies;
• how you will work out redundancy payments.

Individual redundancy consultation

When you plan to make fewer than 20 employees redundant, statutory dismissal procedures form part of the consultation process. These require you to write to each employee letting them know why they are being considered for redundancy. They must have the chance to discuss the proposals at a meeting and they have a right to appeal if you still decide to make them redundant.

Statutory redundancy payments

Employees with at least two years continuous service who have been dismissed, laid off or put on short-time working are entitled to a statutory redundancy payment (SRP). You must make the payment when or soon after you dismiss the employee. You must also give the redundant employee a written statement outlining the amount of redundancy payment and how you worked it out.

An SRP is based on the employee's age, amount of continuous service (up to a maximum of 20 years), and the employee's weekly pay (up to a limit of £430). The maximum SRP payable is currently £12,900. You can give staff extra redundancy pay if you wish, or have a qualifying period of less than two years.

Employees get:

• 1.5 weeks’ pay for each year of employment after their 41st birthday
• a week’s pay for each year of employment after their 22nd birthday
• half a week’s pay for each year of employment up to their 22nd birthday

If you fail to pay redundancy pay or an employee disagrees with the amount, they have six months from the date their employment ended to take you to an employment tribunal. Even if they do not make the claim in time, a tribunal still has the power for a further six months to decide whether or not they should get a payment.

Redundancy pay is not taxable if it is less than £30,000. If you make payments over the £30,000 threshold, these are subject to tax and National Insurance. Other termination payments, like payment in lieu of a holiday or notice, must have tax and National Insurance deducted.

Getting legal advice

Need help finding an employment law solicitor near you? LawyerLocator covers all of the UK from major cities like London, Manchester and Birmingham to small towns in the countryside.

Useful links

Gov.UK - Redundancy pay calculator
Gov.UK - Making staff redundant
Citizens Advice Bureau - Redundancy procedures your employer must follow

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