In November 2020, 402,000 people were made redundant in the UK, mainly as a result of the COVID-19 pandemic. That figure has dramatically reduced since then, however, around 70,000 people are still being made redundant monthly.
Redundancy is one of the most distressing things that can happen to an employee, so it’s vital that it is handled sensitively and carefully. But what exactly is redundancy?
In this article, we’ll explain what employee redundancy is, as well as how an employer decides who to make redundant and what the redundancy process is. We’ll also talk about redundancy pay and what else employers can do to provide redundancy support.
If an employer needs to reduce the size of their workforce, they may dismiss members of staff in certain roles. This is known as employee redundancy.
Employers make redundancies for various reasons, including the introduction of new technology that makes some jobs unnecessary, the need to cut costs in order for the business to stay afloat, the fact that certain jobs no longer exist within the company or the closure or relocation of the business.
Redundancy is more complicated than simply ending employees’ contracts of employment, though. Continue reading if you want to learn more.
There are various types of employee redundancy.
If an employer is making fewer than 20 employees redundant, it is an individual redundancy. If they’re making 20 or more employees redundant within a 90 day period, it is a collective redundancy.
There’s also voluntary redundancy, whereby an employee puts themselves forward for dismissal (for example, older employees wishing to retire early) and compulsory redundancy with the employer choosing which staff to let go of.
When choosing which members of staff to make redundant, an employer should be fair and objective and their choice must be based on evidence.
Some of the most common methods of redundancy selection are:
- Asking for volunteers
- Asking staff to reapply for their jobs
- Length of service
- Looking at disciplinary records
- Staff appraisal
If an employer hires a direct replacement to take on the role, it is not a genuine redundancy and usually, the job must have disappeared in order for the employer to make the employee redundant. The exceptions to this are:
- The company is relocating and the member of staff’s employment contract states that they must move to the new location but they refuse
- Someone else at the company takes the employee’s job after theirs disappears (‘bumping’)
Unfair methods of selection
An employer cannot use the following reasons to make someone redundant:
- Discrimination
- Doing jury service
- Exercising their statutory rights
- Membership or non-membership of a trade union
- Taking part in lawful industrial action lasting 12 weeks or less
- Whistleblowing (disclosing an employer’s wrongdoing)
Not only is redundancy a challenging and upsetting situation that can affect staff morale and productivity throughout the organisation, but redundancy legislation is complicated. This means it’s vital that employers understand their obligations and follow certain procedures when making an employee redundant.
If an employer is considering making redundancies, they should take the following steps:
1. View redundancy as a last resort
Even when redundancies are handled well, they still have the potential to cause damage to a company’s culture. This is why they should be considered a last resort.
Some alternatives to redundancy include:
- Lay-offs
- Offering early retirement to volunteers
- Offering employees different roles within the business
- Pay cuts (although these must be agreed with employees unless there’s a clause in their employment contract)
- Offering employees sabbaticals and secondments
- Pay freezes
- Recruitment freezes
- Reducing or stopping overtime
- Shorter working hours
If, however, redundancies are absolutely necessary, employers who plan to make more than 20 employees redundant must inform the Redundancy Payments Service acting on behalf of the Department for Business, Energy & Industrial Strategy (BEIS).
2. Identify the redundancy selection pool
When making redundancies, one of the most important things is to make sure that the group of employees selected for redundancy is identified carefully and fairly.
Usually, the selection pool will consist of one or more of the following:
- Employees who do a similar job
- Employees who work in a particular department
- Those who work at a particular location
- Those with jobs that no longer exist
Once the selection pool has been established, employers should formulate a voluntary redundancy package to offer employees, to minimise the number of compulsory redundancies.
3. Schedule consultations
Employers must consult individual employees before making them redundant. These consultations are a way for employees to influence the redundancy process. The first round of consultations should cover:
- The reasons why an employee was selected
- The proposed methods of selection
- The number of proposed redundancies and their job types
- The redundancy procedure
- The method for calculating redundancy payment
- Whether there are any alternatives to redundancy
If an employer is making more than 19 redundancies, they should arrange at least two collective consultations with elected representatives or recognised trade unions. These should be held at least 30 days before notices of dismissal are issued for dismissals of 20 to 99 and 45 days for dismissals of 100 or more.
4. Select employees for redundancy
If there aren’t enough volunteers for redundancy, an employer may need to choose individuals from within the selection pool. As already mentioned, employers must base their choices on objective criteria.
Some businesses use a points system to choose which employees to dismiss. This is where an employee’s skillset, disciplinary records and quality of work are measured by allocating points, with the lowest scoring employees facing redundancy. If possible, scoring should be carried out independently by at least two managers who know all of the employees in the redundancy selection pool.
5. Offer suitable alternative employment
Employers should consider alternatives to redundancies, such as redeployment within their organisation or an associated business.
If an employee refuses suitable alternative employment, they may risk losing their entitlement to statutory redundancy pay.
Those who do agree to take on the new role are entitled to a four-week trial period, so if the role turns out not to be suitable, they revert to being redundant.
Employment law states that employees with at least two years’ service are to be given paid time off to look for work during the final notice period.
6. Schedule further consultations
The final stage of the redundancy process involves individual meetings and redundancy notice letters.
An employer should give written notice to each of the employees selected for redundancy, stating that they are “at risk of redundancy” and inviting them to individual meetings.
During this meeting, the employer should consider any points put forward by the employee and schedule further meetings if necessary.
Once the final consultation has taken place, the employer must decide whether to go ahead with the redundancy and, if applicable, confirm the dismissal with a redundancy notice letter, stating when the employee’s final day with the business will be and what redundancy pay they will receive.
Employees have the right to appeal against the redundancy decision if they wish to do so.
If an employee has worked for a company for two or more years, they will be entitled to redundancy pay. How much statutory redundancy pay they get is based on the formula below, however, a more generous redundancy package may be outlined in their employment contract.
How is redundancy pay calculated?
The minimum statutory redundancy pay an employee will get is based on the age of the employee, how long they’ve been continuously employed for and what their weekly pay is (up to a certain amount). This is what they’ll get:
- Employees under 22 years: Half a week’s pay for each full year they’ve been employed
- Employes aged 22 to 41: One week’s pay for each full year they’ve been employed
- Employees over 41 years: One-and-a-half week’s pay for each full year they’ve been employed
Redundancy should be handled with compassion. In addition to redundancy pay, some of the ways in which employers can help both the people who have been made redundant and those who remain in employment include:
- Implementing a communication strategy — Not only will this ensure that everyone in the company has the correct information, but taking time to explain the reasons for the redundancy, expressing that it’s a tough decision and letting everyone know that their contribution to the business is valued shows empathy and respect.
- Putting a redundancy programme in place — Offering employees support and advice in their search for a new job can increase confidence and make them feel more positive about the future. A well-designed redundancy programme will help employees with their CVs, job applications and interview skills.
- Recommending counselling services — Redundancy can have a significant impact on a person’s mental health. While it’s not always possible for employers to provide Employee Assistance Programmes, it can be helpful to give details of counselling services that are available in the local area.
- Acknowledging remaining employees — Employees who survive redundancy may be worried about their own job security going forward. So it’s important for employers to keep staff morale up by explaining the need for the changes, demonstrating the value of the remaining roles and being open about the company’s plans for the future.
If an employer needs to reduce the size of their workforce, they may dismiss members of staff in certain roles. This is known as employee redundancy.
Employers make redundancies for various reasons, including the introduction of new technology that makes some jobs unnecessary, the need to cut costs in order for the business to stay afloat, the fact that certain jobs no longer exist within the company or the closure or relocation of the business.
The different types of employee redundancy are individual redundancy, collective redundancy, voluntary redundancy and compulsory redundancy.
When choosing which members of staff to make redundant, an employer should be fair and objective and their choice must be based on evidence.
It’s vital that employers understand their obligations and follow certain procedures when making an employee redundant. If an employer is considering making redundancies, they should take the following steps:
- View redundancy as a last resort
- Identify the redundancy selection pool
- Schedule consultations
- Select employees for redundancy
- Offer suitable alternative employment
- Schedule further consultations
If an employee has worked for a company for two or more years, they will be entitled to statutory redundancy pay, which is based on the age of the employee, how long they’ve been continuously employed and what their weekly pay is.
Some of the ways in which employers can help both the people who have been made redundant and those who remain in employment include implementing a communication strategy, putting a redundancy programme in place, recommending counselling services and acknowledging remaining employees.