The recent increases in National Minimum Wage (NMW) and National Insurance (NI) contributions have placed significant financial pressure on businesses, prompting many to consider redundancies as a way to manage costs. However, redundancy is a sensitive process that must be handled carefully to ensure compliance with employment law and fairness to employees. Here’s a concise guide for employers facing this challenge.
Understanding Redundancy
Redundancy occurs when there is no longer a need for employees to perform work of a particular kind, often due to reduced workload, efficiency improvements, or cost-cutting measures. It’s important to focus on the role being made redundant—not the individual—to avoid unfair dismissal claims.
Steps in the Redundancy Process
1. Identify the Need for Redundancy
Assess your business needs and confirm redundancy is the only viable option. Explore alternatives such as redeployment or voluntary redundancies.
2. Create a Redundancy Plan
Develop a clear plan outlining:
- Reasons for redundancy
- Number of roles affected
- Consultation process
- Support measures for impacted employees.
3. Consultation
Engage in meaningful discussions with employees or their representatives. For collective redundancies (20+ employees), consultation must begin at least 30 days prior to dismissals (45 days for 99+ redundancies).
4. Selection Process
Use objective criteria to fairly select employees for redundancy. The redundancy process begins with identifying a “selection pool.” This includes employees in similar roles or those with interchangeable skills. The selection pool ensures that redundancies are decided fairly and consistently across comparable roles.
5. Using Objective and Measurable Criteria
Employers must apply objective, measurable, and non-discriminatory criteria to select employees for redundancy. These criteria should be based on facts rather than personal opinions and must be consistently applied across the selection pool. Avoid discriminatory practices that could lead to legal claims.
6. Provide Notice
Inform affected employees of their redundancy and provide appropriate notice periods based on their length of service. (Unless they have a more generous contractual notice period, statutory notice is below):
- 1 week for employment between 1 month and 2 years
- 1 week per year of service for employment between 2 and 12 years
- 12 weeks for employment over 12 years.
7. Support Employees
Offer resources such as career counselling, CV workshops, or outplacement services to help employees transition smoothly.
8. Documentation and Appeals
Maintain detailed records of the process and allow employees to appeal against redundancy decisions.
9. Statutory Redundancy Pay (UK)
Eligibility:
An employee with at least 2 years of continuous service and is being made redundant (not dismissed for misconduct) is eligible for a redundancy payment.
Calculation:
Based on age, length of service (up to 20 years), and weekly pay (capped at £700 as of April 2024):
- Under 22: 0.5 week’s pay per year.
- 22–40: 1 week’s pay per year.
- 41+: 1.5 weeks’ pay per year.
Maximum Payment: £21,000 (30 weeks x £700).
Tax: Redundancy pay is tax-free up to £30,000.
For exact figures, use the UK Government’s redundancy calculator.
Legal Compliance
Employers must adhere to the Employment Rights Act 1996 and Equality Act 2010 to avoid unfair dismissal or discrimination claims. Seeking professional HR advice ensures compliance and minimizes risks.
Why Fairness Matters
A structured, transparent redundancy process not only protects your business legally but also preserves trust among remaining staff members and maintains your reputation as an employer.
By following these steps, businesses can navigate redundancies effectively while demonstrating care and professionalism during challenging times.
