Statutory redundancy in the UK

Statutory redundancy is a last resort for your business, but it can help to keep you operating during difficult times.

There’s a thorough redundancy process you have to follow to make sure you’re compliant with UK employment laws to ensure a fair process.

However, if you’re considering redundancies due to the coronavirus pandemic, remember you have alternative options available. You can contact us for redundancy legal advice or call us on 0800 028 2420 for immediate assistance.

There’s the Job Retention Scheme you can consider to furlough employees and take the financial strain off your business.

But if you feel you must make dismissals, then you can read this guide for details on the steps ahead. But we also offer total redundancy support for further guidance. 

What is redundancy?

It’s a type of dismissal, where an employee’s contract of employment ends with your business. This is because you no longer need a role (or roles).

Remember, redundancies are a last resort for your business. So, you must take steps to avoid dismissals, until you have to make them.

There are many reasons for redundancy. These include:

• If a business is closing down.
• If a business is moving location.
• For cost-cutting measures.
• When one business buys another company.
• If new technology makes certain roles unnecessary.

However, you can’t just dismiss staff and leave it at that.

There’s a redundancy process you need to follow (which we explain further below). This can help you meet the legal requirements for dismissing staff.

But you’ll need to be careful and detailed in your approach. If you don’t, it can result in serious legal consequences—and damage to your reputation.

Your employer redundancy rights

As a business, you do have the right to dismiss employees. However, you need a strong business case to go ahead with your plans. 

But you also need to keep in mind redundancy law in the UK for your employees. Legislation for this is in the Employment Rights Act 1996.

You have legal responsibilities you have to uphold. These are:

• Using a fair and objective process to select employees.
• Providing affected staff with information (in writing) about your plans—that’s if you’re planning to dismiss more than 20 staff or over (a collection redundancy).
• To provide the correct notice period.
• To provide the correct amount of redundancy pay (if the employee is eligible).

Employees also have redundancy entitlement to the correct pay. They’re eligible if they have over two years’ service with your business—then they can receive statutory redundancy pay. They’ll receive:

• Half a week of pay for every full year worked—if they were over 22 years of age.
• One week of pay for each full year they worked, if they were 22 or older (but under the age of 41).
• One and a half week of pay for each year they worked for you—that’s if they’re over the age of 41.

But length of service does cap at 20 years.

So, they’re legal requirements you have to provide each member of staff. If you don’t, it can result in a grievant complaint or claim for unfair dismissal.

Again, this shows you why it’s important to follow the right process for dismissals. And to document everything you do so you can prove your steps were fair.

The types of redundancy in the UK

There are two types, although they have the same outcome—dismissing employees from your workforce. We explain how they differ below.

Compulsory redundancy

These take two standard forms:

1. A reduction in staffing numbers.
2. The complete shutting-down of an organisation or function.

If you’re closing down an entire department, for example, you don’t need to agree on selection criteria to identify those who you’re dismissing.

That’s because everyone will face dismissal.

But if you’re in a position where you have to reduce numbers, and can select who to dismiss, you have to first clarify the criteria you’ll use for selection.

Your process must remain fair and objective—don’t let personal feelings influence any of your decisions.

Fair reasons to include in your selection criteria are:

• Disciplinary record.
• Performance record.
• Work performance.

Whatever selection criteria you decide, you must ensure your criteria doesn't discriminate against protected characteristics. Such as disability, pregnant staff, or religious beliefs.

There’s danger of an unfair dismissal claim and workplace discrimination if, for example, you dismiss someone because they’re pregnant or on maternity leave.

That’s direct discrimination and can result in an employment tribunal.

That’s why it’s crucial for you to remain fair in your process and have genuine justifications for all of your decisions. That way, it’s based on evidence and facts you can prove.

Anything that looks unusual can lead to a workplace grievance complaint.

We have a full guide to compulsory redundancy if you need further help with this.

Voluntary redundancy

You can choose to offer a voluntary redundancy package to staff. This is a precursor to making compulsory redundancies.

The reason for this is it can encourage some employees to leave in a positive way.

Ultimately, it’s their choice—that can have a big impact on how they feel as a result of leaving.

For example, if certain employees are close to retirement age, they may choose to volunteer and take an early leave from your business.

To encourage employees to consider this option, many businesses will often provide a big financial package.

This can make the difference for some employees. However, remember that you can’t force employees into volunteering.

It must be their decision only, without any interference from you as an employer.

How does redundancy work?

There are steps you need to follow for the correct process. You can consider these redundancy rules. We’ll break them down into five steps for you:

1. Build a strong business case for needing to dismiss staff.
2. Consider alternative options to redundancy (including other roles in your business that may prove suitable for employees).
3. Create your selection criteria for choosing members of staff.
4. Consult with employees who are facing dismissal. That’s if over 20 or more are facing redundancy—a legal requirement. However, it’s best practice to do this anyway.
5. Complete the process and make your dismissals.

For small and medium-sized businesses, the process can appear intimidating. Especially with the potential for negative legal and financial consequences.

But if you follow the right process, this can limit the possibility of that occurring. So, here’s a quick overview of each step above and the actions you can take to complete them.

Create a strong business case

Identify why you need to make dismissals and detail this for your records. You’ll need to explain this to your employees at a later date.

So, you must have a genuine reason—such as needing to cut costs.

Consider alternative options to dismissal

Before going further, examine the other methods you could use. This can include:

• Different roles in the business for the employees.
• Laying them off temporarily or for a set period of time.
• Requesting a pay cut—the employee will have to agree to this.
• Placing staff on furlough during the coronavirus pandemic.

Create a selection criteria

You need to choose staff to dismiss. A common selection technique is with a scoring system, in which you can grade employees on the criteria we mention further above.

As a reminder, this can include analysing staff member’s skill set and quality of work.

Primarily, you need to avoid choosing criteria that’ll come across as direct or indirect discrimination.

So, be careful about the criteria you choose. For example, picking length of service can result in an employee claiming indirect discrimination through ageism.

Hold consultations

You must have at least two consultations with your employees if there’s a collective redundancy process. That’s where over 20 employees are facing dismissal.

But it’s a good idea to have consultations anyway with your staff, even if there’s just one individual facing redundancy.

This can help you to explain your reasons and clarify any questions they may have.

Ultimately, it can help you to prevent any legal complaints if you answer their questions.

Send out your redundancy notices

The final step in the process—you must provide your employees with a written notice.

In this document, you can include the information about their notice period and the redundancy pay they’ll receive.

Along with their final day working with your business.

Remember, employees have the right to appeal any decisions you make. So you may have to prepare for further activities in the event an individual complains.

Need our help?

Okay, you know the basics. But do you need extra support? Well, we’re always on hand to help. Get in touch on: 0800 028 2420