Making staff redundant

Overview

Redundancy is when you dismiss an employee because you no longer need anyone to do their job. This might be because the business is:

• changing what it does
• doing things in a different way, eg using new machinery
• changing location or closing down

Redundancies can be compulsory or non-compulsory. If you do have to make redundancies you can get help from Jobcentre Plus.

Employee rights

Employees have certain rights and may be entitled to redundancy pay if they’re made redundant.

All employees under notice of redundancy have the right to:

• reasonable time off to look for a new job or arrange training
• not be unfairly selected for redundancy

Alternative employment

Employers must try to find suitable alternative employment within the organisation for employees they’ve made redundant.

Employees can try out an alternative role for 4 weeks (or more if agreed in writing) without giving up their right to redundancy pay.

Avoiding redundancies

You should take steps to avoid compulsory redundancies, eg by:

• 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
• restricting recruitment
• 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’ve selected someone for redundancy, you can still offer them alternative work.

For an offer to be valid:

• it should be unconditional and in writing
• it must be made before the employee’s current contract ends
• it should show how the new job differs from the old
• the job must actually be offered to the employee - they shouldn’t have to apply
• the new job must start within 4 weeks of the old job ending

Employees who accept an offer of alternative work are allowed a 4-week trial period to see if the work is suitable. If you both agree that it isn’t, they can still claim redundancy pay.

If you think the job is suitable but the employee refuses to take it, they might lose any redundancy pay entitlement.

Lay-offs and short-time working

You can lay off an employee (ask them to stay at home or take unpaid leave) when you temporarily can’t give them paid work - as long as the employment contract allows this.

Short-time working is when an employee works reduced hours or is paid less than half a week’s pay.

Laying off staff or short-time working can help avoid redundancies - but you have to agree this with staff first.

This could be in:

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

You may also be able to lay off an employee or put them on short-time working:

• where you have clear evidence showing it’s been widely accepted in your organisation over a long period of time
• if you agree with the employee to change their employment contract to allow them to be laid off or put on short-time working (this won’t automatically give you the power to do this without their consent in the future)

Statutory guarantee payments

Employees are entitled to these if you don’t provide them with a full day’s work during the time they’d normally be required to work.

The maximum payment is £25 a day for 5 days in any 3 months (ie £125). If employees usually earn less than £25 a day, they’ll get their usual daily rate. For part-time workers, the rate is worked out proportionally.

Employees can claim a redundancy payment from you if the lay-off or short-time working runs for:

• 4 or more weeks in a row
• 6 or more weeks in a 13 week period, where no more than 3 are in a row

They must give you written notice in advance that they want to make a claim.

You don’t have to pay if they’ll return to normal working hours within 4 weeks.

There’s more advice on lay-offs and short-time working on the Acas (Advisory, Conciliation and Arbitration Service) website.

Non-compulsory redundancy

Voluntary redundancy

This is where you ask employees if they’d like to volunteer for redundancy.

You must have a fair and transparent selection process and tell employees they won’t automatically be selected just because they applied.

Early retirement

This is where you offer employees incentives to retire early. It is used as an alternative to voluntary redundancy.

The offer must be made across the workforce - you can’t single out specific individuals.

Compulsory redundancy

If you decide you need to make compulsory redundancies, you must:

• identify which employees will be made redundant
• make sure you select people fairly - don’t discriminate

Fair selection criteria

Fair reasons for selecting employees for redundancy include:

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

You can select employees based on their length of service (‘last in, first out’) but only if you can justify it. It could be indirect discrimination if it affects one group of people more than another.

Unfair selection criteria

Some selection criteria are automatically unfair. You must not select an employee for redundancy based on any of the following reasons:

• pregnancy, including all reasons relating to maternity
• family, including parental leave, paternity leave (birth and adoption), adoption leave or time off for dependants
• acting as an employee representative
• acting as a trade union representative
• joining or not joining a trade union
• being a part-time or fixed-term employee
• age, disability, gender reassignment, marriage and civil partnership, religion or belief, sex and sexual orientation
• pay and working hours, including the Working Time Regulations, annual leave and the National Minimum Wage

Redundancy consultations

If you don’t consult employees in a redundancy situation, any redundancies you make will almost certainly be unfair and you could be taken to an employment tribunal.

You must follow ‘collective consultation’ rules if you’re making 20 or more employees redundant within any 90-day period at a single establishment.

There are no set rules to follow if there are fewer than 20 redundancies planned, but it’s good practice to fully consult employees and their representatives. An employment tribunal could decide that you’ve dismissed your staff unfairly if you don’t.

Collective consultation

Follow these steps.

1. You must notify the Redundancy Payments Service (RPS) before a consultation starts. The deadline depends on the number of proposed redundancies.

2. Consult with trade union representatives or elected employee representatives - or with staff directly if there are none.

3. Provide information to representatives or staff about the planned redundancies, giving representatives or staff enough time to consider them.

4. Respond to any requests for further information.

5. Give any affected staff termination notices showing the agreed leaving date.

6. Issue redundancy notices once the consultation is complete.

Notification

Notify RPS by filling in form HR1. Instructions on where to send it are on the form.

The deadline for notifying RPS depends on the number of proposed redundancies.

Consultation

There’s no time limit on how long consultations last, but there is a minimum period before you can dismiss any employees.

Information you must provide to representatives or staff

You must provide written details of:

• the reasons for redundancies
• the numbers and categories of employees involved
• the numbers of employees in each category
• how you plan to select employees for redundancy
• how you’ll carry out redundancies
• how you’ll work out redundancy payments

Further information

Download the guidance on how to manage collective redundancies from Advisory, Conciliation and Arbitration Service (Acas).

Giving staff notice

You must give staff notice and agree a leaving date once you’ve finished the redundancy consultations.

Give staff at least the statutory notice period, based on how long they have worked.

Notice pay

You must give staff notice pay - based on their pay rate and notice period - or make a payment in lieu of notice.

Pay in lieu of notice

If you have included a payment in lieu of notice clause in the employment contract, you can end your staff’s employment with no notice. This lets you make a payment to cover the notice period they would have worked.

These payments must have tax and National Insurance deducted.

Redundancy pay

Employees you make redundant might be entitled to redundancy pay - this is called a ‘statutory redundancy payment’.

To be eligible, an individual must:

• be an employee working under a contract of employment
• have at least 2 years’ continuous service
• have been dismissed, laid off or put on short-time working - those who opted for early retirement don’t qualify

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

Statutory redundancy pay rates

These are based on an employee’s age and length of employment and are counted back from the date of dismissal.

Employees get:

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

Length of service is capped at 20 years and weekly pay is capped at £475. The maximum amount of statutory redundancy pay is £14,250.

You can give your staff extra redundancy pay if you want to, or have a qualifying period of less than 2 years.

If you don’t pay

If you fail to pay redundancy pay or if an employee disagrees with the amount, they have 6 months from the date their employment ended to make a claim for payment to an employment tribunal.

If an employee doesn’t claim in time, a tribunal still has 6 months to decide whether or not they should get a payment.

If you have financial difficulties

If your business would become insolvent as a result of making the statutory redundancy payments, the Insolvency Service’s Redundancy Payments Office may be able to help.

You’d have to repay any debt as soon as possible - contact the Redundancy Payments Helpline for more information.

Tax

Employees who’ve been made redundant only pay tax on payments over £30,000. They don’t pay any National Insurance.

Tax and National Insurance are deducted from other termination payments, eg payment in lieu of a holiday or notice.

Getting help

If you have to make redundancies, Jobcentre Plus can give you and your employees support and advice through its Rapid Response Service.

Support could include:

• helping people facing redundancy to write CVs and find jobs
• providing general information about benefits
• helping people to find the right training and learn new skills
• helping with costs like travel to work expenses

Jobcentre Plus may also provide on-site support for large scale redundancies.

In Scotland, Rapid Response Service support is delivered through Partnership Action for Continuing Employment (PACE) - there’s more information on the Skills Development Scotland website.

In Wales, the service is delivered by the ReAct scheme.

Acas has an online redundancy helpline.

How to get help

To find out how your business can use the Rapid Response Service, email rrs.enquiries@jobcentreplus.gsi.gov.uk and include:

• your contact details
• the town(s) your business is based in (including postcodes)
• the location(s) of the redundancies