An employer’s guide to Redundancy
As retail and restaurant closures continue to build across UK high streets, redundancy has certainly become a topic that businesses cannot afford to ignore. Following a large spike in redundancies during the last recession in 2009, levels have remained reasonably solid ever since, with roughly 100,000 people made redundant every year in the UK.
With increasing numbers of businesses facing closure, cashflow problems, or areas of obsolescence, it is more important than ever that businesses carefully plan for contraction and expansion, relocation, and organisational and structural company changes.
What is redundancy?
Redundancies are a form of dismissal that can occur when an employee’s job no longer exists. This may be due to an employer needing to reduce their workforce, close the business, or when certain work is no longer required during business changes.
If an employee is made redundant, they may be eligible for certain rights such as time off to look for work, redundancy pay, a notice period, and consultation with you.
Why are employees made redundant?
What are the alternatives to redundancy?
Before you begin the redundancy process, you should consider any alternative options that you could use or combine to reduce redundancies, or even prevent them altogether. These could include:
- Reducing or ending overtime (depending on contract terms)
- Initiating a recruitment freeze across your business
- Retraining existing staff for complex or hard to fill roles
- Ending contracts with agencies who currently supply you with casual or agency staff
- Offering flexible working and job shares
- Offering voluntary redundancy or early retirement options
- Temporarily laying off employees – this is when employees are ‘laid off’ for an agreed period of time, and usually on considerably reduced pay.
- Temporarily placing employees on ‘short term working’ – this is similar to laying staff off, but is where, with agreement, employees are laid off for set days or hours each week for a short-term period
Human resources software can help you plan all of the above. Here at IRIS we have a range of HR products to help with things like redundancy. Larger businesses looking for HR software can choose IRIS Cascade, whereas our cloud HR software, IRIS HR Pro, will be better suited to smaller businesses.
What are the different types of redundancy?
There are essentially two types of redundancy in the UK – collective and compulsory:
Compulsory redundancies are triggered when all other options have been exhausted, and there is no other course of action open. An announcement of compulsory redundancies triggers the beginning of a process. At the point of announcement, management will not yet have selected the staff to lose their jobs.
Noncompulsory redundancy occurs when the employees being made redundant agree to the course of action. Generally, this follows a call for volunteers for redundancy – usually, at this point you may want to offer an enhanced redundancy package, or the option for early retirement.
Volunteers do not have to be accepted for redundancy if the loss of their skills would be detrimental to the organisation. Be aware, however, that you will then have a de-motivated member of staff for a considerable period (if not permanently).
What are redundancy consultations?
It is vital that you consult with your employees prior to making any redundancies. You must provide them with information as to why the redundancies are necessary, and if there are any alternatives to making your employees redundant. The period of consultation can either be individual or collective – individual consultation means that you will need to speak to each employee directly and confidentially.
The right to be collectively consulted applies when an employer proposes to make 20 or more employees redundant at one establishment over a period of 90 days or less. If this situation applies to your business, you should also consult individual employees, as an Employment Tribunal may find it unfair if employers only consult unions, and fail to consult individuals.
It is good practice in any collective redundancy situation for you to work with trade union or workplace representatives to agree the commencement and duration of the consultation procedure. You are required to consult with the ‘appropriate representatives’ of any of the employees who may be affected (directly or indirectly) by the proposed dismissals.
You must undertake consultation with a view to reaching an agreement with appropriate representatives on issues such as ways of avoiding dismissals, or reducing the number of employees to be dismissed. This duty applies even when you have identified volunteers for redundancy. Any employer failure to comply with the consultation requirements could lead to a claim for compensation, known as a protective award.
Consultation should begin in good time, and must begin at least:
- 30 days before the first dismissal takes effect, if 20 to 99 employees are to be made redundant
- 45 days before the first dismissal takes effect, if 100 or more employees are to be made redundant
To ensure that employee representatives can play a useful part in the consultation process, you must disclose certain information in writing including:
- The reasons for the proposed redundancies
- The numbers and descriptions of employees affected
- The proposed method of selecting employees for dismissal
- The proposed method of carrying out dismissals, taking account of any agreed procedure
- How redundancy payments, other than the legal minimum, will be calculated
Can I use Selection Criteria to help me decide?
You should consult all affected employees regarding the selection criteria for redundancy. The criteria must be objective, fair and consistent. Basing any selection on skills or qualifications will help to keep a balanced workforce appropriate to your business’s future needs. You should also ensure that you establish an appeals procedure:
Examples of such criteria include:
- Attendance records (You should ensure that these are fully accurate, and that reasons for and the extent of the absence are known)
- Disciplinary records (You should also ensure these are fully accurate)
- Relevant skills or experience
- Current and historic standards of work performance
- An aptitude for work
- Formal qualifications and advance skills should be considered, but not in isolation
How do you provide your staff with adequate notice?
Any employees that are selected for redundancy must be given a satisfactory notice period before their current employment ends. The statutory notice periods are:
- At least one week of notice if the employee has been employed between one month and two years
- One week of notice for each year of employment, between two years and 12 years
- 12 weeks of notice for someone who has been employed for 12 or more years at your organisation
What are the rules on redundancy pay?
Employees may be entitled to redundancy payments if you have continuously employed for them for at least two consecutive years.
If your business does not have a contractually enhanced pay arrangement, employees with at least two years of continuous employment are entitled to statutory redundancy pay of:
- 5 weeks’ pay for each full year of service, whilst they were aged under 22
- 1 week of pay for each full year of service, whilst they were aged 22 or older, but under 41
- 5 weeks of pay for each full year of service, whilst they were aged 41 or older
Employees can only count a maximum of 20 years of service, and the ‘weekly pay’ is subject to an upper limit. The maximum statutory redundancy payment available to employees is capped at £525 per week.
A 7-step redundancy plan for small businesses
Ideally, redundancies should always be avoided, but if you have exhausted all other options and avenues, then it is always better to carefully plan your approach and subsequent actions in advance.
- Brief managers
Before speaking openly and honestly with the wider workforce, you should first ensure that your managers are prepared, trained, informed and completely ready to support you.
If you are the only owner and/or manager, then you will need to manage the redundancy process on your own, unless you opt to bring in an external consultant. You must ensure that you are confident about handling the process correctly, and are prepared for conducting one-to-ones with staff at risk of losing their jobs.
If you have several owners and managers, ensure that they all share your vision as to the way you want to handle redundancies within the business. Work together to ensure that you can:
- Develop ideas that could help to smooth the process, and even reduce redundancies
- Effectively talk and liaise with staff
- Make redundancy dismissals and give notice of when staff selected for redundancy will leave
- Help you to restructure the business going forward
- Talk to staff
As discussed previously, if you are making fewer than 20 staff redundant, it is a legal requirement that you consult meaningfully with all of your businesses employees. This is specific way to structure a discussion, so you must ensure that you work out how, when and what to talk about. It may also prove useful, as your employees could provide you with options that you may not have previously considered.
The benefits of conducting meaningful individual consultations can include:
- A better chance of finding alternative jobs for staff
- Increased employee morale during a difficult time
- The emergence of ideas and opinions that may not have already been considered
- An opportunity for staff to make you aware of other relevant issues
- Choose redundancy candidates
If redundancy does turn out to be the only way forward, you will need to ensure that you can plan fairly and consistently for deciding which job roles need to be made redundant. You will also need to plan how to select people for redundancy in these posts.
If you are making an entire, specific group of employees redundant, then you have already identified a specific talent pool. However, if you are looking to reduce staff numbers across multiple departments or roles, then you will need to set up selection criteria to identify redundancy candidates.
Keep in mind that you must consider protected characteristics – these include anyone who qualifies as disabled, pregnant or on maternity/paternity leave. You also cannot make people redundant based on absences or attendance issues due to these reasons.
- Notice and pay
This area should form a central part of your discussions, and, if handled well, can provide reassurance for your staff and future business planning.
You must make sure that sufficient notice is provided to employees who are to be made redundant, and ensure that they are also paid correctly. The best idea is to do this in a formal dismissal meeting, and confirm the details in writing, including instructions on how to appeal the decision.
Keep records of the dates that notice was given to employees, and the dates that their employment ends. Also ensure that you check employment contracts for any formal dismissal procedures that may apply.
- Notice rights
Ensure that you stay mindful of the special rights that your selected employees have to look for alternative jobs and training. This will help you to plan ahead. In the meantime, if other positions become available within the business, consider upskilling and re-training existing employees to help with avoiding redundancies.
Anyone who has worked for you for more than two years has a legal right to reasonable time off during working hours to look for alternative work. Only some of this time must be paid.
This can often provide staff with the chance to appeal against redundancy decisions, and can also allow you to review all decisions made up to this point – are you sure that you have selected the right roles and people?
Ensuring that you build an appeal system into your redundancy process can help you with:
- Gaining early warnings that an employee is unhappy with the process and redundancy
- Dealing with a complaint and resolving matters at an early stage, reducing the likelihood of a tribunal claim.
- Gathering evidence that can demonstrate to a tribunal that you have followed fair procedure
- Focus on the future
Try to keep in mind that redundancy is normally an unfortunate but necessary process that help you with getting your business back on track. It is essential that you plan properly for how the business will operate when redundant staff leave, and communicate your future vision to all staff who are staying on board.
Making sure that you make best use of all remaining staff is crucial to your future success. Be sensitive to the fact that they have emerged from a difficult period themselves, and will have lost colleagues and friends due to the process. If you communicate and seek their views and suggestions on future business progress, you are far more likely to rebuild enthusiasm and morale more quickly.
In the case of significant changes to remaining job roles, and increasing or decreasing responsibilities, be careful not to overload staff whilst they try to adjust to their new roles. Any major adjustments are likely to require variation to existing employment contracts, and this will require the following of a specific process. For more information, see the Acas Advice Leaflet.BACKNEXT