How to manage redundancies
We constantly note that many more businesses are restructuring, downsizing and many are entering insolvency. We work with all sizes of businesses and in all sectors, we manage and navigate this complex area and ensure that legal compliance is achieved, it is imperative that you follow the correct process, we are also acutely aware that many business owners find discussing these matters difficult, we can assure you that we have many years experience act with your best interests at heart and in complete confidence.
In this article, we look at what redundancies are, how you can avoid them, what rules you need to follow, and what you must pay.
In this guidance and in our Redundancy Toolkit Redundancy Toolkit we have all the documents, criteria, guides, correspondence, and other support materials you will need to use, you can download these as templates at any time directly from our website in Word format, however, we cannot stress the importance of expert legal guidance commencing the process of redundancies. This will help you avoid mistakes that could cause an unfair dismissal to claim or other difficulties, we are on hand to assist and manage the entire process on your behalf.
What are redundancies?
Redundancy is when you, unfortunately, have to dismiss an Employee because you no longer need someone to do the job. You may have to do this for various reasons, such as if your business is changing what it does, how it does things, or is downsizing.
For a redundancy to be genuine, you need to demonstrate that the Employees’ job will no longer exist, it is imperative that you do not use redundancy as an excuse to get rid of someone, or so you can give another person their job, or as a reason to exit them due to their performance and or conduct.
Are there different kinds of redundancy?
In a nutshell, yes, there are two kinds of redundancy, compulsory redundancies, and non-compulsory redundancies.
A compulsory redundancy is when you as an Employer choose who to make redundant while non-compulsory redundancy is when you allow the Employee/s the option to volunteer to be made redundant.
It is important that the process of compulsory redundancies the selection process is fair and unbiased. If you are making a non-compulsory redundancy, you must be as honest and transparent with your Employee/s as you can about the selection process and make sure they understand that they will not be automatically selected for redundancy just for applying. Alternatively, you could offer early retirement by giving Employee/s incentives to retire early, but this offer should be made to the whole workforce, and you should not single anyone out.
How can you avoid making Employee/s redundant?
You should only proceed with compulsory redundancies if you really need to, there are many alternatives that you should consider before resorting to compulsory redundancies, such as:
- Seeking applications for voluntary redundancies or early retirement
- Seek applications from current Employee/s to move to flexible working
- Lay off Employee/s not directly employed by you, such as self-employed contractors and freelancers
- Freeze recruitment for your organisation
- Reduce, or even completely ban, working overtime
- Filling vacancies elsewhere in the business with people already employed by you
- Instigate short-time working or give temporary lay-offs
Can you offer Suitable Alternative roles to Avoid Redundancies?
Yes, you can also offer someone who is being made redundant suitable alternative work. However, in order for your offer of alternative work to be valid it should be unconditional, they should not have to apply for a chance to get the job. It is important that you tell them how the offered job differs from their old job, so they can make an informed choice of whether to take the offer or not. Your offer should also be in writing. Additionally, you need to make the offer before their current contract ends and the new job must start within 4 weeks of their old job ending.
If they accept the job offer, there should be a 4-week trial period in order for both you and the Employee to see if it is sustainable. If you both agree that it is not, then they can still claim redundancy pay. If you think the job is sustainable but the Employee refuses to take it, they might lose out on their redundancy pay. If you wish, you can have a longer trial period than 4 weeks if you both agree with this in writing.
As an Employer what do you need to keep in mind when making Employee/s redundant?
If you have to make Employee/s redundant, there are some things that you should keep in mind to make sure the process is fair to everyone in the workplace. If you decide that you need to make compulsory redundancies, you must identify which Employee/s will be made redundant and make sure the reason for choosing those Employee/s is fair and not discriminatory.
Fair reasons for selecting an Employee could be:
- Their skills and qualifications
- Their standard of performance at work
- Their attendance
- Their disciplinary record
You might also be able to choose someone due to the length of service, so long as it is not the only reason you have chosen them, and you can confidently justify why. You should also be careful when selecting based on length of service since if it affects one group more than another it could be indirect discrimination.
Are there reasons that are considered to be unfair?
Some selection criteria for redundancy can be inherently unfair. Most of the list of what is inherently unfair criteria for redundancy is similar to the inherently unfair criteria for dismissing someone.
- Pregnancy, and all reasons relating to maternity
- Family, including parental leave, paternity leave (for birth and adoption), adoption leave or time off for dependents
- Acting as an Employee representative
- Acting as a trade union representative
- Acting as an occupational pension scheme trustee
- Joining or not joining a trade union
- Being a part-time or fixed-term Employee
- Pay and working time regulations, such as minimum wage or annual leave
Do you need to consult with Employee/s and what does this involve?
If you need to make Employee/s redundant, you should consult with your Employee/s about the situation. You can consult with Employee/s by giving them a redundancy consultation, or, if you have more than 20 redundancies planned in a 90-day period, you should conduct a collective consultation instead.
It is extremely important that you carry out the redundancy consultation before dismissal because if you do not it is likely that they could be considered unfair, and Employees will be able to bring a claim to the employment tribunal.
What rules must you follow when making redundancies?
There are a specific set of rules you must adhere to if you are performing a collective consultation, but there are no such rules for a redundancy consultation, but it is good practice to at least consult with your Employee/s and their representatives, or else you run the risk of a claim being brought against you in an employment tribunal.
When it comes to collective consultations, there are guidelines that you must follow, these are:
- You must notify the Redundancy Payment Service (RPS) before you start consultations. There is a deadline to the minimum amount of time you have for notifying the RPS before your first redundancy happens. This time period differs depending on how many people are being made redundant. If you have between 20 and 99 planned redundancies, you must notify them at least 30 days before the first redundancy is made, but if it is 100 or more, you must notify them at least 45 days before the first redundancy is made. If you do not notify the RPS, you could be fined an unlimited amount
- If your workplace has a union or Employee representative, it is important that you consult with them. If there are none of either, then you should consult with Employee/s directly instead
- You should provide information about the planned redundancies to the Employee/s or their representatives and give them time to consider the information
- If anyone is asking for further information, you should respond to their requests
- Give any affected Employee/s termination notices which show their agreed leaving date
- Finally, issue redundancy notices when the consultation is complete
When it comes to providing information to Employee/s or their representatives, you should provide written details of:
- The reason for redundancies
- The number of Employees involved and their categories, as well as providing information on the total number of Employees in each category
- How you plan to select Employees for redundancy
- How you will carry out the redundancies
- How you will work out redundancy pay
When you have finished your redundancy consultations, you should agree on a leaving date and give Employee/s notice on when their last day will be.
If you want to learn more about how to handle large-scale redundancies, we are on hand to assist
As an Employer what to do when giving notice and redundancy pay?
When making redundancies in your workplace, it is important to understand how much notice you need to give to Employees and whether they should receive redundancy pay. When giving notice, there is a statutory period of how much notice you must give them (but you can give them more notice if you choose, or there is extra added to an Employees Contract of Employment). The notice period varies depending on how long the employee has worked for you, the periods are:
- A week’s notice if they have worked between 1 month and 2 years
- If the Employee has worked between 2 years and 12 years, they should get a week’s notice for every year they have worked (for example someone who has been working for you for 4 months will get 4 weeks’ notice)
- If they have worked for you for more than 12 years, it caps out at 12 weeks’ notice
When issuing Employee/s notice, you should give them notice pay or payment in lieu of notice. Notice pay is the payment they earn during their notice period. Your Employee’s notice pay will be the average weekly salary they have earned over the 12 weeks before their notice period began, and this should include regular overtime, commission, and bonuses. Alternatively, if their contract allows it, you can instead end your Employee/s employment without notice and instead make a payment to cover the notice period they would have worked. You will still have to pay Employee/s the basic pay they would have got during the notice period, but you might also have to pay pension, private health care insurance, or other contributions if it’s in the Employee/s contract.
Will you need to pay Redundancy Payments and how much will this be?
Redundancy pay is different to notice pay. Redundancy pay is a sum of money that you as an Employer must pay to an (eligible) Employee who they are making redundant. The payment should be given when the Employee leaves or soon after they leave. If they are eligible, Employees that you make redundant might be entitled to a ‘statutory redundancy payment’.
To be eligible for a statutory redundancy payment, they should:
- Be an Employee, meaning they are working under a contract of employment
- Have worked for you for at least 2 continuous years
- Have been dismissed, laid off or put on short-time work, however, people who opt for early retirement are ineligible
The pay rates for their statutory redundancy payment are dependent on the length of the Employee/s employment and their age, these are both calculated from their date of dismissal (meaning counting their notice time in their length of employment). Employees should receive:
- 1.5 weeks’ pay for every full year they work after their 41st birthday
- 1 week’s pay for every full year they work after their 22nd birthday
- 0.5 weeks’ pay for every full year they work before their 22nd birthday
The statutory maximum that you need to pay is up to 20 years of service. The week’s pay given is based on the average pay the employee earned for the 12 weeks leading to their redundancy, for 2023 the weekly pay is currently capped at £643.00, and the maximum amount is capped at £19,290.00. If you want to calculate an employee’s redundancy pay, there is a helpful tool on the government website which helps to calculate it.
What if you fail to make the payment?
If you fail to pay statutory redundancy pay or if the Employee disagrees with the amount, the Employee has three months from the date their employment ends to bring a claim for payment at an employment tribunal. If they do not claim on time, the tribunal has an additional 6 months to decide whether they should still receive the payment.
If you are having financial difficulties which would cause your business to become insolvent (become unable to pay its debts) if you pay the redundancy pay, the Insolvency Service Redundancy Payments Service may be able to help you stay afloat for the time being, but you would have to repay the debt as soon as possible. If you require help from the RPS you should email them at [email protected] and tell them:
- Your name
- Whether you are the Employer or Employee
- Whether you should be the main point of contact between the business and the RPS
- The name of your business
- Your business address
- The number of redundancies being made
How can we help you
While this article has given you enough of an overview of what redundancies are and how they work to help you understand what they are and the processes involved, since they are a complex topic, it is impossible to cover every aspect of them in a single post.
If you need to instigate redundancies and need any extra help or support through the process, we at HR and You Ltd are experienced in our understanding of Employment Law and would be happy to help your business handle the period of change. Do not hesitate to contact us via email, [email protected], or phone, 0333 006 9489, for a no-obligation chat to find out whether our services are right for you.
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