Employer redundancy guide

Redundancy Law Guide for Employers

Redundancy, while sometimes necessary, can be a complex and very stressful process. Read on to find out how, as an employer, you should approach making staff redundant, adhering to legal requirements, ensuring fairness and minimising disruption and legal risk.

Key Points for Employers

• Follow a fair and transparent redundancy process to avoid legal challenges.

• Document everything meticulously.

• Communicate openly and honestly with employees throughout the process.

• Seek professional advice if unsure about any aspect of the process.

The Redundancy Process

1. Decide redundancies are necessary -  Identify the genuine business need for redundancy (e.g., closure, restructuring, economic downturn). This is often the least risky aspect for employers because an Employment Tribunal is not mandated to second guess the employer’s business decisions by substituting their own subjective views.

2. Check your own contracts and policies – as getting the process right is so important, it’s essential to ensure you comply with your own polices and procedures on redundancy. If you don’t have any, it’s highly recommended to adopt model guidance on process from ACAS.

3. Consult with employees - consult affected employees or their representatives about the proposed redundancies and explore alternative solutions (e.g., redeployment, reduced hours). This is a legal requirement for larger redundancies.

4. Consider whether voluntary redundancies are an option - Encourage and manage voluntary redundancies fairly if available. Be mindful of selection criteria to avoid discrimination. Another way to potentially avoid formal redundancies or reduce the number is to offer employees an enhanced package to mutually agree to leave in the form of a settlement agreement

5. Decide on redundancy selection criteria - develop and document fair and objective criteria for selecting who will be made redundant. These should be based on business needs and performance, such as past performance, skills, and qualifications relevant to remaining jobs, attendance and disciplinary record and excluding discriminatory factors like age, race, or gender. The precise choice of criteria or weighting given to each factor is generally entirely up to the employer. Many employer’s will choose “last in first out” as an important factor but employers can adopt their own approach.

6. Apply the Scoring & Ranking - apply the selection criteria consistently to each employee, using a transparent system. Document the process thoroughly.

7. Notice Period - provide written notice of redundancy, increasing with length of service (up to 12 weeks). Consider extending the notice period to allow adequate job search time.

8. Employee appeal against being made redundant? -  employees do not have an automatic legal right to appeal a redundancy decision. However, many employers have their own internal grievance or appeal procedures for redundancies. This typically involves raising concerns with a manager or HR representative and outlining the reasons for believing the redundancy is unfair. Any appeal process should be fair and transparent

9. Redundancy Pay - calculate and pay statutory redundancy pay, unless employees haven't worked there for 2 years or were dismissed for misconduct. Consider contractual redundancy pay if provided in the employment contract.

10. Support Services - Offer reasonable paid time off for job search and career advice or outplacement services where possible.

Employee Financial Entitlements upon Redundancy in England (as of January 2024)

When an employee is made redundant in England, they are entitled to several financial benefits under law. Here's a breakdown of the main entitlements:

Statutory Redundancy Pay

Employees with at least 2 years of continuous service with the same employer are eligible. The amount is calculated based on :-

• Weekly pay capped at £643.

• One and a half week's pay for each full year of service aged 41 and over.

• One week's pay for each full year of service aged 22 to 40.

• Half a week's pay for each full year of service under 22.

• A maximum current payout of £19,290 (based on the current weekly pay cap).

Notice Pay

Eligibility depends on employees having a contractual right to notice or where there is no express entitlement, based on custom or practice.

The amount depends on the terms of the employment contract or custom/practice. Generally, the longer the service, the longer the notice period. No maximum set by law: Notice pay can be higher than redundancy pay.

Accrued Holiday Pay

All employees accrue entitlement to paid annual leave. Amount is based on the employee's normal working hours and pay rate. No maximum set by law: Any unused holiday pay must be paid when the employment ends.

Pension Payouts

Eligibility depends on the specific pension scheme. Calculation varies depending on the type of pension scheme and its rules. May involve lump sum payments, increased accruals, or other benefits.

Additional contractual entitlements

Some employers offer additional benefits in redundancy cases, such as enhanced redundancy payments, outplacement services, or continuation of health insurance.