How to conduct a redundancy process

Author: Brightmine editorial team

Summary

Introduction

This guide gives an overview of the key steps for employers to take to conduct a redundancy process in compliance with their legal obligations.

It links to our other "how to" guides for further detail on specific steps in the process. The "how to" guides link to templates for letters and forms to use at the relevant steps.

For training guides for line managers on the redundancy process, see:

For a detailed explanation of the law around redundancies, see our Employment law guide.

For guidance on change management, including aspects of redundancy exercises, see our Leading practice guides.

Recognise a potential redundancy situation

There will be a potential redundancy situation where there is:

  • a closure of the business;
  • a closure of a particular workplace;
  • no longer a need for employees to carry out work of a particular kind, or the need has diminished; or
  • there is no longer a need for employees to carry out work of a particular kind at a particular workplace, or the need has diminished.

Redundancy is a potentially fair reason for dismissal. However, for a redundancy dismissal to be fair, there must be a genuine redundancy situation and you must follow a fair procedure in carrying out the dismissal.

You should explore how to avoid or reduce the need for redundancies.

For guidance on other options, go to How to consider alternatives to redundancy in an economic downturn.

Identify which employees are affected and determine the selection pool

You should identify which and how many roles are potentially redundant. However, at this stage you are not identifying which specific employees may be redundant.

You may need to create a redundancy selection pool. This will be necessary if you need to make a certain number of redundancies from a larger group of similar positions.

For example, if you determine that five secretarial positions are potentially redundant, where there are more than five secretaries in the organisation, you may choose to place all the secretaries in the redundancy selection pool.

You are at liberty to determine the size and composition of any redundancy selection pool. However, you should keep a written record of your decision and be able to justify it if necessary.

Any employees absent on, for example, sick leave or maternity leave who are at risk of redundancy should be included in the redundancy procedure.

Fixed-term and part-time employees should be included in the redundancy procedure if their job is at risk, although you must take care not to subject these groups to any detriment based on their fixed-term or part-time status (unless you can objectively justify your actions).

For more guidance on this step, go to How to decide which employees to include in a redundancy pool.

Determine the redundancy selection criteria

Where there is a pool of potentially redundant employees, you will need to determine the redundancy selection criteria that you will use to select employees from the pool for redundancy.

You should choose criteria that are as objective as possible. For example, an employee's performance against sales targets can be assessed objectively, while "attitude" requires a more subjective assessment.

The selection criteria should not be discriminatory. For example, where "absence record" is used, any sickness absence due to an employee's disability and any absence due to pregnancy or pregnancy-related reasons should be disregarded.

You should create a redundancy selection matrix using your chosen criteria.

You should be open to amending the selection criteria following the consultation process.

For more guidance on this step, go to How to choose and apply redundancy selection criteria.

Determine if collective consultation is necessary (or appropriate)

The statutory obligation to consult collectively arises where you propose to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less.

Voluntary redundancies and redeployments count towards this figure.

Even if collective consultation is not technically necessary, as a matter of good practice you should consult with appropriate trade union or employee representatives, as soon as possible and as fully as possible.

For more detail on this step, go to Collective redundancy consultation: duty to consult.

Announce the redundancy situation to staff

You will need to announce the redundancy situation to those members of staff at risk of redundancy.

This can be done at an informal group meeting, followed up by a letter to the staff at risk, including any employees unable to attend the meeting.

You should explain the reasons for the redundancy situation. You should give an overview of the procedure that you will follow, including the proposed selection criteria, where relevant, and the expected timeline, and confirm whether you will be consulting collectively.

You should let employees know who they can contact if they have any questions about the process.

Following the announcement to the staff at risk, you should, as a matter of good practice, inform those staff not at risk of redundancy of the situation. This could be done by way of a company-wide email or an announcement on the company intranet.

Ascertain who the appropriate representatives are and carry out elections, if necessary

If you are obliged to consult collectively with appropriate representatives, you will need to determine whether such representatives already exists.

Where your organisation recognises an independent trade union for collective bargaining purposes in respect of the affected employees, the appropriate representatives will be trade union representatives.

Where it does not, you can choose between existing representatives (such as members of a works council), or employee representatives elected specifically to deal with consultation on the proposed redundancies.

If there are no appropriate existing representatives, you will need to arrange elections.

For more guidance on this step, go to How to arrange the election of employee representatives for collective redundancy consultation purposes.

Consult collectively and notify the Secretary of State, if necessary

The collective consultation must take place in good time. In any event, it must begin at least 45 days before the first dismissal takes effect when you are proposing to dismiss 100 or more employees within a period of 90 days or less, and at least 30 days before the first dismissal takes effect where the proposed number of dismissals is between 20 and 99.

There is no requirement that the consultation last for 30 or 45 days, but you should not issue notices of termination until the consultation process has been completed.

The consultation should include consultation about ways of: avoiding the dismissals, reducing the number of employees to be dismissed, and mitigating the consequences of the dismissals.

For the purposes of consultation, you must provide the appropriate representatives with certain information in writing including the reasons for the proposed redundancies and the proposed method of selecting the employees who may be dismissed.

Where you are obliged to consult collectively you must also notify the Secretary of State of the redundancy proposals. This notification must be given before notice is given to terminate any of the contracts, and at least 45 days before the first dismissal takes effect where you are proposing to dismiss 100 or more employees, or at least 30 days before the first dismissal takes effect where the proposed number of dismissals is between 20 and 99.

Once you have completed your main collective consultation obligations, you can proceed with individual consultation of potentially redundant staff.

For more detail on this step, go to Collective redundancy consultation: duty to consult.

Invite volunteers for redundancy, if appropriate

It is good practice for you to consider inviting volunteers for redundancy.

Voluntary redundancies can have a less demoralising effect on the workforce than compulsory redundancies.

However, they can be more costly than compulsory redundancies as it is often the longer-serving members of staff who would be entitled to a substantial redundancy payment who volunteer.

In addition, to attract volunteers you may have to offer enhanced redundancy terms.

Before inviting volunteers for redundancy, you should consider the impact that voluntary redundancies might have on the structure of the remaining workforce and, in particular, whether the programme might result in an imbalance in skills and experience.

You should make clear that you reserve the right to decline applications for voluntary redundancy.

If you are able to make sufficient voluntary redundancies, you will not need to go through the compulsory redundancy process.

For more guidance on this step, go to How to manage voluntary redundancies.

Apply selection criteria, if applicable

Where there is a redundancy selection pool, the selection criteria previously determined by you (amended following consultation where relevant) will be applicable.

Where there is no redundancy selection pool, no selection criteria are required.

You must apply the selection criteria to the redundancy pool to determine which employees are provisionally selected for redundancy.

You must ensure that you apply the selection criteria fairly.

The managers scoring the employees must remember that they are scoring the employees not against one another but against the selection criteria. Where possible, this should be done with recourse to objectively justifiable information such as absence records or written appraisals.

It may be helpful if the managers make notes of their thought processes regarding the scoring. These notes will be important evidence should any employee challenge their score during the redundancy process or in a subsequent tribunal claim.

For more guidance on this step, go to How to choose and apply redundancy selection criteria.

Invite the provisionally redundant employees to individual consultation meetings

You should write to those employees who have been provisionally selected for redundancy, inviting them to individual consultation meetings.

Where the employees have been selected from a pool, when writing to each individual, you should include a copy of the employee's scoresheet, showing their scores against the redundancy selection criteria.

It is good practice for you to permit employees to be accompanied at individual consultation meetings by a fellow worker or trade union representative.

Hold individual consultation meetings

You should meet individually with each of the potentially redundant employees.

You should use the individual meetings to discuss the reasons for the redundancy situation and the business case. You should also explain the redundancy process, and any collective consultation that has taken place.

Where selection criteria have been applied, these should be explained and the employee permitted to challenge the basis for their selection.

You should allow the employee to make any representations that they wish, which may include representations in relation to their selection, or suggestions for avoiding the redundancies.

You should answer any questions that the employee has.

Although at this stage the employee is only provisionally redundant, you may wish to provide details of the package that they would receive in the event of being made redundant.

For more guidance on this step, go to How to consult on an individual basis during a redundancy exercise and How to consider offers of suitable alternative work for redundant employees.

Calculate each redundant employee's redundancy pay

Statutory redundancy pay is based on an employee's age, salary and length of service.

To be entitled to a statutory redundancy payment an employee must have been employed for a period of not less than two years ending with the relevant date of termination.

You should count backwards from the termination date to determine how many complete years of continuous employment the employee has and assign the appropriate amount for each year of employment.

The amounts payable (subject to the current statutory cap) are:

  • half a week's pay for each year of employment in which the employee was aged 21 or under;
  • one week's pay for each year of employment in which the employee was aged between 22 and 40; and
  • one and a half weeks' pay for each year of employment in which the employee was aged 41 or over.

The maximum number of years of employment that can be taken into account is 20.

A week's pay is average wages before deduction of tax.

Many employers offer enhanced redundancy payments, but you must ensure that any enhanced redundancy scheme is not discriminatory under the age discrimination legislation.

There is specific provision in the age discrimination legislation for an employer to enhance statutory redundancy payments by: increasing or removing the cap on a week's pay; and/or multiplying the appropriate amount allowed for each year of service by a figure of more than one; and/or multiplying the total amount of the redundancy payment by a figure of more than one. Any other enhanced redundancy payment formula would have to be objectively justified.

Use the Redundancy pay calculator to calculate an employee's redundancy pay. It can be used to calculate statutory redundancy pay, or enhanced payments following the rules permitted by the age discrimination legislation.

Explore alternative employment

The consultation process should include exploring any possibilities for redeploying the employees to alternative work.

If you offer a new role to an employee whose role is redundant, they may be entitled to a four-week trial period. This is the case if the new role starts either immediately or within four weeks of the end of their original contract, and the terms of the contract are sufficiently different to the old role.

For more guidance on offers of alternative employment and trial periods, go to How to consider offers of suitable alternative work for redundant employees.

Where there are employees who are pregnant, on maternity, adoption, shared parental or neonatal care leave, or recently returned from their leave, you have a duty to offer these employees any suitable available vacancy.

In the case of maternity leave, the protected period lasts until 18 months after the child's date of birth (or if you have not been informed of the date of birth, until 18 months after the first day of the expected week of childbirth). Equivalent protected periods apply for the other types of leave.

If a vacancy that is suitable for the employee exists, you must offer it to them even if this means that they are treated more favourably than their colleagues who are also at risk of redundancy.  

For more guidance on offering suitable alternative vacancies to employees in the protected period, go to How to deal with pregnant employees and those on maternity leave in a redundancy situation.

Hold further individual consultation meetings

You should meet individually for a second time with each of the potentially redundant employees.

You should address any outstanding issues, suggestions or questions raised by the employee at the previous meeting.

The employee may have further questions or proposals, in which case you may need further time to consider these and further consultation meetings.

Assuming that representations made by the employee have not led to a change in the organisation's position, you will then be able to issue notice of redundancy.

For more guidance on this step, go to How to consult on an individual basis during a redundancy exercise.

Confirm redundancies in writing

You should write to each employee who is being dismissed on the grounds of redundancy confirming the dismissal.

Employees will be entitled to their usual notice, either the statutory minimum or notice provided for under their contract if longer. You may consider making a payment in lieu of notice.

For guidance on paying in lieu of notice, go to How to make a payment in lieu of notice.

While there is no statutory right to an appeal in a redundancy situation, and the employee should have had the opportunity to challenge their selection for redundancy during the individual consultation process, offering a right of appeal to a higher level is advisable.

On making a redundancy payment, you must supply the redundant employee with a written statement indicating how the payment has been calculated.

You should also write to those employees not selected for redundancy, letting them know that their job is safe.