What is voluntary redundancy?

With the economic landscape facing more uncertainty as each day passes, business owners across the UK are being tasked with some incredibly difficult decisions. 

As small businesses (SMEs) in particular have had to periodically open and close throughout the entire COVID-19 pandemic, cashflow has become unstable, and a need to cut costs has arisen for some.

One way in which business owners can look to maintain operational viability and reduce their expenditure is to offer voluntary redundancy packages.

But this poses the question, what is voluntary redundancy?

Voluntary redundancy: everything you need to know

Voluntary redundancy, in essence, is when employers offer a package that provides an employee with a financial incentive to voluntarily terminate their contract.

Typically, these packages are used when businesses need to downsize or restructure and are usually offered to senior employees, however, every employee should be able to apply.

As the employer, it’s your decision on which employees’ applications you take, and it’s worth remembering that just because an employee applies doesn’t mean they need to be accepted.

When selecting employees, you must also consider factors such as skill and knowledge to ensure you’re not losing any critical members.

Why do businesses offer voluntary redundancies?

As previously mentioned, voluntary redundancies are a simple way for you to reduce costs within your business, but they also offer other benefits.

By providing this option, you avoid having to instigate compulsory redundancies which often shake company morale and workplace engagement.

The Institute of Employment Studies found that downsizing threatens employees’ sense of wellbeing, threatening business performance.

What is the notice period for a voluntary redundancy?

If voluntary redundancies are something you wish to pursue, you must consider the notice period for each employee that is selected.

The amount of notice required will vary from employee-to-employee based on their length of service, for example:

• One week’s notice for those who have been employed between one month and two years
• One week’s notice for each year worked by those employed for between two and 12 years
• 12 weeks’ notice for those employed for 12 years or more

What statutory pay is required for voluntary redundancies?

If you don’t have a pre-arranged redundancy pay in the employee’s contract, but they have at least two years of continuous service, they’re entitled to the following statutory payments:

• Half a week’s pay for each full year of service while they were under the age of 22
• One week’s pay for each full year of service while they were between the age of 22 and 41
• One and a half week’s pay for each full year of service while they were 41 or older

For those employees claiming statutory redundancy pay, they can only count a maximum of 20 years’ service at a cap of £538 per week.

It’s also worth noting that the first £30,000 of redundancy pay is not taxable.

Other factors to consider when offering voluntary redundancies

Bear in mind that employees are under no obligation to accept the terms you offer as part of the redundancy package.

Additionally, under the Employment Right Act 1996, a voluntary redundancy falls under a dismissal, and therefore you must conduct the consultation process and protocols.

You need to also treat employees the same way as if they were employed up until the day they leave.

This means that you must comply with the law regarding, pay, pensions, holidays, sickness and treatment for discrimination harassment and bullying.

How can IRIS help?

If you’re looking for jargon-free HR software that can help you easily manage the people processes associated with redundancies, look no further.

IRIS HR Professional provides you with all the tools needed to simplify processes while ensuring compliance.

For more information and to start your free trial of IRIS HR Professional, click here.