Redundancy: the options

If you have to make employees redundant you must follow a fair redundancy dismissal procedure and consult the affected employees and their representatives. This guide offers a detailed overview of the redundancy process. It includes:

• obligations to consult employees and their representatives
• lay-offs and short-time working
• statutory payments
• avoiding redundancy 
• compulsory and non-compulsory redundancy

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What is redundancy?

Redundancy is when you dismiss an employee because you no longer:

• carry out the business for which they are employed
• carry out the business in the place where they are employed
• require them to carry out work of a particular kind

For a redundancy to be genuine, you must demonstrate that the employee’s job will no longer exist.

In this situation, eligible employees would be entitled to receive a statutory redundancy payment (SRP) – see the page in this guide on the rights of redundant employees.

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Lay-offs

You can lay-off an employee when you temporarily cannot give them paid work. You must expressly agree it with them. This could be set out in:

• their contract of employment
• a national agreement for the industry
• a collective agreement between you and a recognised trade union

National and collective agreements can only be enforced if they are included in the employee’s contract of employment.

You may also be able to lay off an employee:

• Where you have clear evidence that shows that laying off employees has been a widely accepted practice over a long period of time.
• If you agree with the employee to change their employment contract to allow them to be laid off. This change will not necessarily give you the power to lay off the employee without pay and without their consent in the future.

Where there is no formal agreement in place and the employee refuses to agree to being laid off, you may have to consider terminating the employee’s original contract and offering them a new, revised one.

This involves dismissing the employee and could lead to a claim of unfair dismissal.

See our guide on how to change an employee’s terms of employment.

Wrongful lay-offs

You will be in breach of contract if you lay off an employee without pay if there is no contractual agreement. 

The employee may:

• choose to accept the breach of contract and treat the contract as continuing, while claiming a guarantee payment
• sue for damages for breach of contract in a civil court or, in certain circumstances, at an employment tribunal
• bring a claim of unlawful deduction of wages before an employment tribunal
• claim that your action amounted to a dismissal which could lead to a potential claim of unfair dismissal

Statutory guarantee payments (SRP) and lay-offs

Employees are entitled to a statutory guarantee payment if you don’t provide them with a full day’s work during the time they would normally be required to work. The maximum payment is five days in any three months.

For more information, see our page on guarantee pay – entitlement, calculation and exemptions in our guide on pay – an overview of obligations.

Employees can claim a SRP if the lay-off runs for:

• four consecutive weeks or longer
• a series of six or more weeks with not more than three consecutive – in a 13-week period

The employee must give you written notice in advance that they intend to make a claim for a SRP.

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Short-time working

Short-time working is when an employee has no paid hours for a number of working days in a week. This is because:

• they are working a reduced number of paid hours
• their pay is less than half a week’s pay

You can only put an employee on short-time working where you have expressly agreed it with them. Such an agreement may be set out in:

• their contract of employment
• a national agreement for the industry
• a collective agreement between you and a recognised trade union

National and collective agreements can only be enforced if they are included in the employee’s contract of employment.

You may also be able to put an employee on short-time working:

• Where you have clear evidence that shows that short-time working has been a widely accepted practice over a long period of time.
• If you simply agree with the employee to change their employment contract to allow them to be put on short-time working. This change will not necessarily give you the power to put the employee on short-time working without their consent in the future.

Where there is no contractual agreement already in place and the employee refuses to agree to short-time working, you may have to consider terminating the employee’s original contract and offering them a new, revised one.

However, this involves dismissing the employee and could lead to a claim of unfair dismissal.

See our guide on how to change an employee’s terms of employment.

Wrongful short-time working

You will be in breach of contract if you put an employee on short-time working without a contractual agreement.

As a result, the employee may:

• choose to accept the breach of contract and treat the contract as continuing
• sue for damages for breach of contract in a civil court or, in certain circumstances, at an employment tribunal
• bring a claim of unlawful deduction of wages before an employment tribunal
• claim that your action amounted to a dismissal which could lead to a claim of unfair dismissal or for a statutory redundancy payment (SRP)

Statutory guarantee payments

If you don’t provide the employee with work on a day which they would normally be required to work, they are entitled to a statutory guarantee payment. The maximum payment is five days in any three months.

See the page on guarantee pay – entitlement, calculation and exemptions in our guide on pay – an overview of obligations.

Short-time working and SRPs

Employees can claim a SRP if the short-time working runs for:

• four consecutive weeks or longer
• a series of six or more weeks – with not more than three consecutive in a 13-week period

Under the lay-off or short-time provisions of the Act, employees who are laid off without pay or put on short-time and receive less than half a week’s pay for four consecutive weeks, or six weeks in a continuous period of thirteen weeks, may also claim a redundancy payment from their employer. The claim must be in writing and may be resisted by the employer if normal working is likely to be resumed within four weeks.

There is a strict timetable of requirements, one of which is the resignation of the employee, whereby the employee may ultimately complain to an employment tribunal if he considers that he is entitled to a redundancy payment and it remains unpaid.

The employee must give you written notice in advance that they intend to make a claim for a SRP.

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Redundancy selection – non compulsory

Non-compulsory redundancy covers voluntary redundancy and early retirement.

Voluntary redundancy

You could ask employees if they would like to volunteer for redundancy and then select those to be made redundant.

The advantages:

It is less demoralising and disruptive than compulsory redundancy and helps identify employees who are willing to accept redundancy.

The disadvantages:

It could work out to be more expensive – you may need to offer enhanced redundancy payments to attract people to leave.

There is also the risk that employees not granted their voluntary redundancy request may react negatively, and you could also end up with an imbalance of skills and experience.

Early retirement

You can offer incentives to employees to retire early.

Giving incentives for early retirement is often an acceptable alternative to redundancy for employees and trade unions and may be less harmful to employee morale than compulsory redundancy. The statutory retirement procedure has changed, see the page on retirement ages and procedures in our guide on when an employee retires.

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Redundancy selection – compulsory

If you decide to make compulsory redundancies you will need to:

• create an objective and non-discriminatory redundancy selection criteria
• identify which employees will be made redundant

The criteria that can be used to select employees for redundancy can include:

• skills, qualifications and aptitude
• standard of work performance
• adaptability
• attendance/disciplinary record

Be consistent with your selection criteria to avoid the possibility of unlawful discrimination.

Automatically unfair selection criteria

Some criteria will make any subsequent redundancy dismissal automatically unfair. You should not select an employee for redundancy because of issues related to:

• trade union membership
• legal industrial action lasting up to 12 weeks
• being an employee representative
• actions taken on specified health and safety grounds
• pregnancy, maternity, paternity, adoption and parental leave
• regulations on part-time workers

For a complete list, see the page on unfair dismissal in our guide on dismissal.

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The redundancy consultation process

If you fail to consult employees in a redundancy situation, any redundancies made will almost certainly be unfair.

Collective redundancy notification and consultation

A collective redundancy is when you plan to make 20 or more employees redundant within a 90-day period. You must:

• Notify the Insolvency Service Redundancy Payments Service (RPS) by letter or using form HR1. You can download form HR1 [opens in a new window].
• Consult with workplace representatives. These may be either trade union representatives and/or elected employee representatives for those employees not represented by a union. If your employees choose not to elect employee representatives, you must give the relevant information directly to each individual.

Consultation must start when you are developing redundancy proposals and at least:

• 30 days before the first redundancy where there are 20 to 99 proposed redundancies
• 90 days before the first redundancy where there are 100 or more proposed redundancies

If you fail to carry out collective redundancy consultation, affected employees may claim a protective award from an employment tribunal – see the page in this guide on potential problems following redundancy.

It is good practice to consult employee or trade union representatives even if fewer than 20 redundancies are planned.

BIS must receive the notification on form HR1 at least:

• 30 days before the first redundancy where there are 20 to 99 proposed redundancies and before the individuals have received personal notice of termination
• 90 days before the first redundancy where there are 100 or more proposed redundancies and before the individuals have received personal notice of termination

Late notification, or failure to notify, is an offence and you may be liable to a fine up to £5,000.

Redundancy and information and consultation (I&C) agreements

If you have an I&C agreement in place, you have a duty to inform and consult employees or their representatives on changes to the workforce. This means that you may have to inform and consult on any proposed redundancies.

You do not have to inform and consult at the same time under both the redundancy and the I&C legislation – you can choose instead to ‘opt out’ of your I&C agreement and consult under the redundancy legislation only.

What information must you provide?

At the start of the consultation, you must provide written details of:

• the reasons for redundancies
• the numbers and categories of employees involved
• the numbers of employees in these categories
• how you plan to select employees for redundancy
• how you will carry out redundancies
• how you will work out redundancy payments

Consultation does not have to end in agreement, but it must be properly carried out with a view to reaching agreement, including ways of avoiding the redundancies or reducing their effect.

Individual redundancy consultation

You should consult employees individually regardless of the number you plan to make redundant.

If you fail to do so, any subsequent dismissals may be unfair.

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Rights of redundant employees

Redundant employees have a number of rights and may be entitled to receive a statutory redundancy payment (SRP).

The right to receive a SRP

To receive a SRP, an individual must:

• be an employee working under a contract of employment
• have at least two years’ continuous service
• have been dismissed, laid off or put on short-term working- those who opted for early retirement do not qualify

A redundant employee also has the right to receive a written statement setting out the amount of any redundancy payment and how you worked it out.

You must make the payment when or soon after you dismiss the employee.

How is a SRP calculated?

A SRP is based on an employee’s age and length of employment and is counted back from the date of dismissal. Employees receive:

• 1.5 weeks’ pay for a year of employment after their 41st birthday
• one week’s pay for a year of employment after their 22nd birthday
• half a week’s pay for a year of employment up to their 22nd birthday

Their length of service is capped at 20 years. Weekly pay is subject to the statutory limit which is £430. The maximum SRP payable is £12,900.

Taxation of SRPs

SRP is not taxable, as it’s not more than £30,000. Any redundancy payment you make in addition to SRP is subject to tax and National Insurance (NI).

Other termination payments made to the employee at the same time – like a payment in lieu of holiday – must have tax and NI deducted.

Failure to make a SRP

If an employee disagrees with the amount, or you fail to pay SRP, the employee has six months from the date their employment ended to make a claim for payment to an employment tribunal.

If they fail to make the claim in time, a tribunal still has the power for a further six months to decide whether or not the employee should receive a SRP.

If you cannot pay, the employee can apply to the Department for Business, Innovation & Skills for a direct payment from the NI Fund.

However, they must have applied in writing to you for a payment within six months of their employment ending, or applied successfully to an employment tribunal within the six months after that.

Other redundancy rights

Employees under notice of redundancy also have the right to:

• be offered suitable alternative employment
• have a trial period in the alternative employment without losing their right to an SRP
• reasonable time off to look for a job or to arrange training
• not be unfairly selected for redundancy

For more information, see our page on unfair dismissal in our guide on dismissal.

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Help for redundant employees

Try to find ways of helping employees come to terms with their situation.

You could:

• consider re-employment to other roles within the business
• advise them to contact their local Jobcentre Plus
• contact other local employers who may have vacancies
• offer advice on searching for suitable vacancies in the press and on the internet
• offer guidance on CVs, job application forms and interview techniques
• let them know about professional and career development loans (PCDLs), which can be used to fund a work-related training course 

Redundant employees can find out about PCDLs on the Directgov website- Opens in a new window or call the PCDL Helpline on Tel 0800 585 505 to order an application pack.

You can also:

• provide clear information on the amount of redundancy pay and how it affects pension payments and state benefits
• point out the need for the employee to discuss the financial implications of redundancy with their family as early as possible

Your local Jobcentre Plus can provide advice if any employees being made redundant are under 18. 

Apprenticeship redundancies

An apprentice can continue their apprenticeship through full-time training for a period of up to six months if you have to make them redundant.

You should let the providers know if there is a risk of an apprentice being made redundant.

Further help and advice on redundancies

Jobcentre Plus can offer support through the Rapid Response Service (RSS) which is delivered by Jobcentre Plus, skills bodies, development agencies and local authorities.You can also get help from the BIS Redundancy Payments Helpline on Tel 0845 145 0004.

The Skills Funding Agency can help employees who have been made redundant and are looking for work. Read about skills support for redundancy on the Skills Funding Agency website- Opens in a new window.

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Potential problems following redundancy

An employee can claim unfair dismissal if they feel you:

• have unfairly selected them for redundancy or incorrectly applied the selection criteria
• failed to offer suitable alternative work where it was available
• didn’t follow the proper consultation process

Employees may also be able to claim a protective award if you fail to properly consult with their representatives, ie trade union or elected employee representatives in collective redundancy situations.

The Department for Business, Innovation & Skill (BIS) may prosecute you for failure to notify the proposed redundancies in advance.

Unfair redundancy selection

An employee will have been automatically unfairly dismissed if you select them for redundancy for certain reasons. For more information, see our page on unfair dismissal in our guide on dismissal.

If you select the employee for redundancy for any of these reasons, they will be able to make an unfair dismissal claim regardless of how long they have been in your employment.

Failure to properly consult

If you fail to properly carry out collective redundancy consultation, a complaint may be made to an employment tribunal by:

• a trade union or elected employee representatives
• individual employees who have been dismissed as redundant

The tribunal may award up to 90 days’ pay to each affected employee.

For more on collective redundancy consultation, see the page in this guide on the redundancy consultation process.

BIS may also prosecute you for failure to notify the proposed redundancies in advance.

Financial problems

If your business would become insolvent as a result of making the statutory redundancy payments, the Insolvency Service’s Redundancy Payments Office (RPO) may be able to help, but you will be expected to repay the debt as quickly as possible. They can also help if you become formally insolvent and fail to pay the employer’s contributions into an occupational or personal pension scheme or owe pay in arrears.

For more information contact the BIS Redundancy Payments Helpline on Tel 0845 145 0004.

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Avoiding redundancies

You should take reasonable steps to avoid compulsory redundancies by considering alternatives, such as:

• seeking applicants for voluntary redundancy or early retirement 
• seeking applications from existing staff to work flexibly
• laying off self-employed contractors, freelancers, etc
• not using casual labour
• recruitment restrictions
• reducing or banning overtime
• filling vacancies elsewhere in the business with existing employees
• short-time working or temporary lay-offs

Offers of alternative work

Even if you have selected an employee for redundancy, you could still avoid dismissals by offering them alternative work.

For an offer to be valid:

• the job must actually be offered to the employee and the employee shouldn’t have to apply
• the offer should be unconditional and in writing
• the offer must be made before the employee’s current contract end
• the offer should show how the new job differs from the old
• the new job must either start straight after the end of the old job or within four weeks

Employees who accept an offer of alternative work are allowed a four-week trial period to see if the work is suitable. They may still claim a statutory redundancy payment (SRP) if you both agree that the work is not suitable. If you think the job is suitable but the employee unreasonably refuses to take it, they may lose any entitlement to a SRP.

Improving business performance

Before considering redundancies you should look at your business and see whether there are other things that you can do to improve its performance.

For more information and sources of assistance see our feature on help for businesses.

The Rapid Response Service (RRS) from Jobcentre Plus

Jobcentre Plus can offer support and advice for you and your employees through the RRS which is delivered by Jobcentre Plus, skills bodies, development agencies and local authorities.

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CASE STUDY

Here’s how we planned ahead to avoid making redundancies

Easibind International provides consultancy services in product packaging, promotion and presentation, incorporating techniques such as 3D mechanical design and advanced finishing processes. The company is based in Heanor, Derbyshire and currently employs around 100 people. Here, managing director Harry Skidmore describes how lessons from the 1990s recession led the company to introduce measures designed to strengthen the business and avoid making redundancies in the future.

What I did

Learn from the past

“In the late 80s, Easibind experienced rapid growth, largely through expanding our customer base and thereby increasing sales volumes. Riding the wave of economic prosperity, our sales force ballooned and we were growing at 30 per cent year on year.

“When recession hit in the early 90s, a sizeable number of our customers went to the wall, severely denting our revenues. We realised then that our customer acquisition tactics had merely amounted to buying sales, rather than adding real value to the business or investing in its future.

“Drastic action had to be taken, including reducing the workforce from over 200 to just 70 people. That was a bitter regret to the management team, especially since our company is closely integrated with the local community. It took several years to recover from that position and we vowed that we wouldn’t let it happen again.”

Re-evaluate everything

“Good intentions are fine, but you have to do more than just talk the talk. We undertook a top-to-bottom review of the company.

“Debt collection practices were an early target. While the money had been flowing in, we’d been too relaxed about debtors. We put strict new procedures in place which we’ve continued to adhere to ever since.

“We also re-visited our business model, focusing on a smaller number of higher value customers and placing greater emphasis on distribution via trade partners. This reduced our sales and marketing overheads from 15 per cent of revenue to just 3 per cent.

“In addition, we invested in new digital printing technology and product innovation, forging partnerships with key suppliers and undertaking Knowledge Transfer Partnerships (KTPs) with universities in order to share resources.

“Perhaps most importantly, we re-skilled our workforce and changed the structure of our sales teams. Employees on the production side received training to enable them to work more flexibly across a variety of different machines and processes.

“On the sales side, we introduced graduates into the mix, working alongside older and more experienced employees who moved into customer-relationship-management roles. This was a conscious move away from traditional sales management, where one person is responsible for a single account. It means we can utilise different skills at different stages of the sales cycle, according to customer requirements.”

Keep looking ahead

“As well as laying foundations for longer term stability, there are things you can do at a tactical level, to be deployed at relatively short notice if necessary. For example, in early 2007 we spotted signs of market corrections as evidenced in market reports and information gleaned from trade associations and customers.

“As a precaution, we introduced a wage freeze for all employees. This was discussed with our workforce and implemented with their co-operation, on the understanding that if conditions improved, bonuses would be payable to make up the shortfall.

“We also introduced annualised hours, again in full consultation with employees. This is a system by which employees’ hours are calculated on a yearly rather than a weekly or monthly basis. The employer and employee then agree the spread of hours worked according to business needs during a particular week or month. This has worked extremely well for us by increasing our flexibility to react quickly to fluctuations in demand.”

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