How to Make Someone Redundant
Making an employee redundant is a difficult decision. Below, we look at the steps you should take when considering redundancy options for your small business.
Sometimes redundancy is unavoidable. It’s a last resort if you need to save money to secure the future of your business. It can be tricky to navigate and you may be unsure how to proceed.
Below, we explain what redundancy is, how to approach the process, and offer tips to help, ensuring you treat your employees fairly and with respect.
What is redundancy?
Redundancy is a way for employers to cut down the size of their workforce. This may be for financial reasons (for example, if you cannot afford to keep all your staff) or because you’re changing how your business operates and some roles in the business will no longer exist.
Redundancy is almost always a last resort for employers, and most will want to avoid it if possible.
Common strategies to try to avoid compulsory redundancies include:
- stopping any current hiring (including freelancers or contractors)
- shortening working hours for current staff
- offering staff alternative positions within the business
- asking employees to use their holiday leave or take days off unpaid
- laying staff off temporarily (if you’re allowed according to an employee’s contract)
- offering employees voluntary redundancy or early retirement
If, despite your best efforts, compulsory redundancies still seem necessary, you should ensure that your redundancy process is fair and legal.
How to approach redundancy fairly
If compulsory redundancies are your only option, it’s important to follow certain steps to ensure you act legally and your employees are treated fairly during the process.
- Consult your employees.
- Make a fair decision.
- Avoid unfair dismissal.
- Give your employees notice.
- Organise redundancy pay.
Consult your employees
It is important that you consult your employees before making anyone redundant. In fact, it is a legal requirement to have a ‘collective consultation’ if you are making 20 or more employees redundant at the same time.
You can find out more information about collective consultation, including who you must inform, any deadlines, and the minimum consultation period on Gov.uk.
Even if you’re only considering making just one employee redundant, it’s worth getting their view on the situation. If you don’t consult your employees, you could be taken to an employment tribunal for unfair redundancy practice if they believe they have been treated badly.
» MORE: What is an employee?
Make a fair decision
As an employer, the decision of who is made redundant falls to you. You must choose redundancy candidates fairly, based on criteria such as:
- the skills and expertise an employee brings to the business
- how well an employee does their job
- any previous disciplinary action taken against an employee
- an employee’s attendance record
You should make decisions based on specific work-related criteria, and be able to justify your actions.
You cannot choose employees to put forward for redundancy based on your personal opinions of them.
Avoid unfair dismissal
Similarly to when you dismiss, or fire an employee, you must have a fair reason to make someone redundant. There are some things which are considered ‘automatically unfair’.
For example, you cannot make redundancy decisions based on:
- pregnancy or maternity
- taking parental or adoption leave, or taking leave to look after dependants
- being an employee representative
- joining or not joining a trade union (including being a representative)
- having a part-time or fixed-term contract
- protected characteristics: age, sex, sexual orientation, gender reassignment, being married or in a civil partnership, pregnancy or maternity leave, disability, race, religion or belief
- pay and working hours, including requesting National Minimum Wage, taking annual leave or opting into the Working Time Regulations
Give your employees the correct amount of notice
If you are going through with redundancies, you must give your employees at least the minimum statutory notice period.
This increases with their length of service:
- One month to two years of service → At least a week’s notice
- Two years to 12 years of service → A week’s notice per year’s service
- Over 12 years of service → 12 weeks’ notice
During their notice period, you must continue to pay employees. Their notice pay is based on what they earned in the 12 weeks before you gave them notice of their redundancy.
If you agree that a staff member can leave before their notice period is up, you must pay them in lieu of their notice. This payment covers what they would have earned in their notice period, minus tax and National Insurance contributions.
Organise redundancy pay
You may have to pay statutory redundancy payments to employees if they have an employment contract and have been working for your business for at least two years.
Employees who have been made redundant or made to work fewer hours qualify. If an employee chooses to take early retirement as part of their redundancy, they are not entitled to a statutory redundancy payment.
Statutory rates for redundancy payments depend on how old your employees are and how long they’ve been working for you. Businesses based in Northern Ireland may be subject to different rules.
To work out how much redundancy pay you should pay to your employees, you can use the government’s Redundancy Pay Calculator.
You can also choose to pay out more than the statutory minimum, or extend eligibility to employees that have worked for you for less than two years.
You can browse Gov.uk or nidirect for more detailed information, including details about the amount of tax and National Insurance you may need to deduct from an employee’s redundancy paycheck.
After the redundancy process is complete, you should look ahead to the future.
It’s worth paying particular attention to your business finances so that you can try to avoid similar redundancies happening again.
For example, you may want to create a small business budget to help predict your income and outgoings, so you have a better idea of what you can afford. It may also be a good idea to create a cash flow forecast.
Image source: Getty Images
Kristina is a writer at NerdWallet. A recent graduate trading French for finance, she has experience creating content for student newspaper Cherwell and an edtech company. Read more