Business

How to compliantly and legally make employees redundant

11 January 2023   |   8 minutes read
Business leaders discussing how to make employees redundant

As explored in a previous post, the current economic downturn makes employee redundancies much more likely. This is for a few reasons. The main cause, of course, is more businesses must now cut costs.

But some companies are pivoting their business models or introducing new technology to enable efficiency savings. If you need to make layoffs, it’s never an easy step (especially for the workers affected).

The UK benefits from strong employee rights. As the employer, there are several steps you must follow to keep things compliant and legal. Failing to do so can result in costly legal fees, payouts and reputational damage.

Follow our guide below to make sure you follow procedures by the book.

Offers of alternative work

Before kickstarting formal layoffs, try to avoid redundancies by finding alternative positions in your company for those at risk of being selected. Offers should be unconditional, in writing, and show how the new job differs from the old one at risk.

New jobs must start within four weeks of old ones ending, and offers must be made before existing contracts end.

Fair selection criteria

If the above isn’t actionable, then you need to take the next step: selecting people to make redundant. When choosing who to let go, you must do so through a fair selection process rather than just an arbitrary cost-cutting exercise.

This should consider:

  • Skills
  • Qualifications
  • Performance
  • Attendance
  • Disciplinary records

While making decisions based on length of service (i.e. “last in, “first out” ), you shouldn’t purely rely on this basis. This is because employees who have recently entered the workplace will be most at risk with this approach, which can open you up to age discrimination.

Unfair selection criteria include:

  • Pregnancy, including maternity leave
  • Part-time or fixed-term employees
  • Age, disability, race, religion, sex and sexual orientation
  • Being part of a trade union

Consultation period

When you’ve selected employees to be affected by redundancy, engage with them by undergoing a consultation process.

Failure to do this can result in you being taken to an employment tribunal due to being classified as unfair. Consultations do not have to end in an agreement between you and those affected. But you must make efforts to take on board the views of both parties.

Making 20 employees or more redundant

If you make over 20 employees redundant in 90 days, you must follow the collective consultation rules:

  1. Inform the Redundancy Payments Services (RPS) before the consultation process starts.
  2. Engage with a trade union representative. If one doesn’t exist, liaise with staff directly.
  3. Provide information about planned redundancies, giving those affected sufficient time to consider them.
  4. Respond to requests for information.
  5. Deliver termination notices for staff affected with the agreed leaving date
  6. Issue redundancy notices

Note: you can be fined an unlimited amount if you do not notify RPS.

Find out further information about consultations on the Advisory, Conciliation and Arbitration (ACAS) website.

Making less than 20 employees redundant

When you make less than 20 employees redundant, there isn’t a set process for consultations. However, it’s still good practice to consult employees, and their representatives. This minimises the likelihood of employment tribunals.

Giving staff notice

Once redundancy consultations are completed, notice and a leaving date must be agreed with staff. The leaving date will be based on the length of service they have delivered for your company.

  • A week should be given to employees who have served one month to two years.
  • Employees who have worked between 2-12 years are due an extra week’s notice for each additional annual period served.
  • Employees with over 12 years of service have their notice period capped to 12 weeks.

Staff are allowed to leave earlier than their planned leaving dates if you offer payment in lieu. If your business allows, this can be a good strategy of retaining goodwill.

Redundancy pay

Affected individuals are entitled to a statutory redundancy payment if they have met the following conditions:

  • They are working under a contract of employment as an employee.
  • Have worked at least two years continuous notice.
  • Been dismissed, laid off or put on short-time working

Statutory redundancy pay rates

The value of redundancy payments for qualifying employees is based on a combination of the age and length of employment of staff:

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

The length of service is capped at 20 years.

The value of statutory pay rates is calculated at the average they earned per week over the 12 weeks before they were served their redundancy notice. Tax is not deducted on the first £30,000 of statutory redundancy pay.

An online calculator is available on the Government’s website to help you with the final calculation.

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