An employer’s guide to redundancy

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Redundancy is one of the most challenging aspects of running a business. It’s a process that no employer wants to undertake, but sometimes it becomes necessary due to economic pressures, organisational restructuring, or changes in business needs. As an employer, it’s crucial to handle redundancies fairly, legally and compassionately to protect both your business and your employees. This guide will walk you through the key aspects of redundancy, including what it is, whether you need legal assistance and the legal requirements around redundancy pay in the UK.

What is redundancy?

Redundancy occurs when there is a reduced requirement for the work the employee is employed to do, and their employment is terminated as a result. This can happen for several reasons, such as:

Business closure: The entire business or a specific workplace is shutting down.

Reduced workload: There’s less demand for the work the employee was hired to do.

Restructuring or reorganisation: Changes in the business structure or processes mean certain roles are no longer required.

Relocation: The business is moving, and the employee cannot or will not move.

It’s important to note that redundancy is not the same as dismissal for poor performance or misconduct. Redundancy is about the role and not the individual. Employers must ensure that the redundancy process is fair, transparent and free from discrimination.

Do I need a solicitor to carry out redundancies?

While it’s not a legal requirement to involve a solicitor in the redundancy process, seeking legal advice can be invaluable, especially if you’re unfamiliar with employment law or if the situation is complex. Here’s why:

Ensuring compliance with employment law: Employment law in the UK is complex and failing to follow the correct procedures can lead to costly employment tribunals. A solicitor can help you navigate the legal requirements, such as consulting with employees, providing notice periods and calculating redundancy pay.

Avoiding discrimination claims: Redundancies must be carried out fairly and without discrimination. A solicitor can help you ensure that your selection criteria (e.g. skills, performance, or attendance) are objective and non-discriminatory.

Handling collective redundancies: If you’re making 20 or more employees redundant within 90 days, you must follow specific collective consultation rules. A solicitor can guide you through this process, including notifying the Secretary of State via a HR1 form and consulting with employee representatives.

Drafting settlement agreements: In some cases, you may want to offer a settlement agreement to an employee as an alternative to redundancy. A solicitor can help draft this legally binding document to ensure it’s fair and enforceable.

While solicitors can provide essential support, many employers also rely on HR professionals or employment law experts to manage redundancies. The key is to ensure you have access to expert advice to avoid mistakes.

Redundancy pay and the law

Redundancy pay is a statutory requirement in the UK and employers must comply with the rules set out in the Employment Rights Act 1996. Here’s what you need to know:

Who is entitled to redundancy pay?

Employees are entitled to statutory redundancy pay if they:

• Have been continuously employed for at least two years
• Are dismissed due to redundancy (not resignation or misconduct)

How much redundancy pay is required?

Statutory redundancy pay is calculated based on the employee’s age, length of service and weekly pay (up to a statutory cap, which is £700 per week as of April 2024). The calculation is as follows:

• Aged 18 – 21: Half a week’s pay for each full year of employment
• Aged 22 – 40: One week’s pay for each full year of employment
• Aged 41+: One and a half weeks’ pay for each full year of employment

The maximum length of service that can be counted is 20 years and the total statutory redundancy pay is capped at £21,000 (as of April 2024).

Enhanced redundancy pay

Some employers choose to offer enhanced redundancy pay, which is more generous than the statutory minimum. This is often outlined in the employment contract or company policy. Offering enhanced pay can help maintain employee morale and demonstrate goodwill during a difficult time.

Notice periods

In addition to redundancy pay, employees are entitled to a notice period before their employment ends. The statutory notice periods are:

• At least one week’s notice if employed between one month and two years
• One week’s notice for each year of employment if employed between two and 12 years

12 weeks’ notice if employed for 12 years or more. Contracts of employment may provide for longer notice periods and, if so, the longer notice periods must be given to the employees.

Employers may be able to pay employees in lieu of notice (PILON) if they don’t want them to work during the notice period.

Tax and National Insurance

Statutory redundancy pay is tax-free, but any additional pay (e.g. enhanced redundancy pay or PILON) may be subject to tax and National Insurance contributions depending on the amount offered.

Tips for handling redundancies fairly

• Plan ahead: Redundancies should be a last resort. Explore alternatives such as reduced hours, temporary layoffs, or retraining employees for other roles.
• Communicate openly: Be transparent with employees about the reasons for redundancy and the process you’ll be following. Hold individual and group consultations to discuss their concerns.
• Follow a fair selection process: Use objective criteria to select employees for redundancy and avoid any form of discrimination.
• Provide support: Offer practical support, such as helping employees update their CVs or providing references.
• Document everything: Keep detailed records of the process, including consultation meetings, selection criteria and calculations of redundancy pay. This can protect your business in case of disputes.

If you’re planning to make redundancies in your business and you need professional legal advice, talk to one of our employment law experts today.