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.
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.
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:
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.
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:
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.
Failing to consult your employees and/ or their chosen representatives during the redundancy process will usually render the redundancy dismissals unfair.
If you plan to make 20 or more employees redundant in one place of work within a 90-day period you must:
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:
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.
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.
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.
What is redundancy
I want to hire an employee, I want to fire an employee, I am being made redundant, I have been fired
Termination of employment contracts
Advice on employment rights
Overview of Employment rights (personal)
Overview of Employment rights (business)
I am a victim of discrimination
Choosing an employment lawyer
LexisNexis LawyerLocator complies with the Solicitors Regulation Authority's Code of Conduct 2011 regarding referrals published by the Solicitors Regulation Authority, and any solicitor to whom we refer you is an independent professional, from whom you will receive impartial and confidential advice. You are free to choose another Solicitor. In the event that you instruct a solicitor, LexisNexis LawyerLocator will be paid a referral fee of up to £40 per solicitor, per accepted enquiry, but this will not be added to your bill.