What is redundancy?
Redundancy is a form of dismissal which generally arises when an employer needs to reduce the size of the workforce. This could be for a number of reasons such as a downturn in profit, a change in business priorities or simply because a specific role is no longer required. Whatever the reason, employers should be sure to follow the correct procedure for making redundancies. This note provides a step by step guide, as advocated by ASAS, for employers who are faced with the task of making redundancies.
1. Avoiding redundancies
The first thing to always consider is whether redundancies can be avoided. For example, compulsory redundancies can be avoided by: –
- Offering voluntary redundancy or early retirement;
- Offering flexible working or reduced hours to existing staff;
- Reducing or laying off self-employed contractors, or using casual labour;
- Restricting recruitment and banning overtime offered to existing employees;
- Offering lay-offs or short time working (provided the employment contract allows for this);
- Filling vacancies elsewhere in the business with existing employees.
Even if an employee has been selected for redundancy, they can still be offered an alternative role. However, for this to be valid, it must have been offered to the employee before their original contract has expired. The offer should be made in writing, outlining how the new role differs from the previous role.
Employees who accept an offer of alternative work are to start the new role within 4 weeks of their old contract expiring. They are entitled to a 4-week trial period to see whether the new role is suitable. If offers of alternative work are unreasonably refused, then this can affect the employees right to redundancy pay.
2. Compulsory Redundancies
If, after taking measures to avoid redundancies or offering voluntary redundancies, your business still needs to let people go, then you move on to compulsory redundancies. At this stage, employers must:
- Identify which employees will be made redundant; and
- Make sure the selection process is fair.
Fair reasons for selection can include:
- skills, qualifications and aptitude
- standard of work and/or performance
- disciplinary record
The selection process should be well thought out and employers should be cautious not to discriminate or use an unfair selection criterion.
3. Redundancy Consultations
Consulting employees in a redundancy situation is not optional and failure to do so will most certainly render the redundancy unfair. If you are making 20 or more employees redundant within a 90-day period, then you must follow the ‘collective consultation’ rules. Please see our detailed article on the collective consultation rules for further information. If there are fewer than 20 redundancies then there are no set rules but employers are advised to fully consult their employees and representatives so as to avoid any potential claims for unfair dismissal.
The consultation process should ideally start by notifying all employees that there are going to be redundancies and informing them of the reason behind this. Information should also be given on the following:
- The number of redundancies expected to be made;
- Which parts of the business will be affected;
- How you plan to select employees for redundancy;
- How the redundancies will be carried out; and
- How the redundancy payments will be calculated.
Following this step, those employees who are specifically at risk of redundancy should be notified by way of an ‘at risk of redundancy letter.’ Once notified, an employer will use the selection criteria discussed above in order to decide who will be made redundant. Once a final decision has been made the selected employees should be notified accordingly.
You must give staff notice and agree a leaving date once you’ve finished the redundancy consultations. Employees are entitled to a minimum statutory notice period, based on how long they have been employed. Alternatively, if their contract provides for a longer notice period, then this must be given. Statutory notice periods are as follows: –
- At least 1 weeks’ notice for employment between 1 month and 2 years;
- 1 weeks’ notice for every year employed where length of service is between 2 years to 12 years;
- 12 weeks’ notice for employment over 12 years.
5. Notice pay
Employees being made redundant are entitled to notice pay based on their standard rate of pay. Alternatively, an employer can offer an employee payment in lieu of notice if the employment contract allows for this. This essentially means that the employee is dismissed without working their notice and instead, is paid in absence of the notice. Payment in lieu of notice is subject to the normal income tax and national insurance deductions.
6. Redundancy pay
Employees you make redundant might be entitled to a ‘statutory redundancy payment.’ To be eligible, an individual must:
- be an employee working under a contract of employment;
- have at least 2 years’ continuous service; and
- have been dismissed, laid off or put on short-time working.
You must make the payment when you dismiss the employee, or soon thereafter. The redundancy payment will be based on the statutory formula, taking into account the employees age, salary and length of service.