Nobody goes into business to make staff redundant. However, it is a task that many business owners will need to undertake at some point
Redundancy is a potentially fair reason to dismiss an employee, but it is vital that you get this procedure right as failure to do so could result in an unfair dismissal claim at the employment tribunal.
Here’s a step by step guide to the redundancy process, and how to negotiate it safely.
Redundancy can affect all businesses, small and large. A redundancy situation often arises due to a decrease in the market or decline in the economy, both resulting in a reduction of clients or customers.
In order to cope, some businesses have to reduce the number of staff they employ if the work is not sufficient for all of them.
The definition of redundancy for redundancy pay purposes is when at the site in question work of a particular kind has ceased or diminished, or is reasonably expected to cease or diminish. For example, this can occur if:
- The employer has closed down, or intends to close down, the business as a whole,
- The employer closes down the place where the work is carried out,
- The need for the kind of work has ended or reduced.
If you are considering dismissing a member of staff on the basis of performance, you should read our guide to; Dismissing a member of staff – what you need to do to stay on the right side of the law
Redundancy procedure: best practice
It is best employment practice to have a redundancy procedure implemented already even before a redundancy situation arises. If there is a procedure it may be appropriate to include it in the employee handbook, as this way staff will be aware of the process.
A redundancy procedure should constitute of the following steps:
- Identifying posts which make up the pool of selection
- Inviting volunteers for redundancy or early retirement
- Consultation – individual and collective
- Applying a fair selection criteria
- Notifying the individual(s) to be made redundant
Requirements depend on the scale of the redundancy
Different legal requirements apply to a redundancy exercise dependent on whether it is small scale or large scale.
Small scale redundancies are those which propose fewer than 20 posts at one establishment to be made redundant in a period of 90 days or less. Large scale redundancies involve making 20 or more employees redundant within 90 days.
Recent case law has indicated that an ‘establishment’ is the branch or individual workplace where the employees are assigned to carry out their work. For example, a large national clothing chain with multiple sites would be able to count each branch as an ‘establishment’.
This means that, when considering whether collective consultation is required, the number of proposed redundancies at each site should be counted, rather than counting to total number of proposed redundancies across the country. This means that collective consultation is now likely to occur on fewer occasions.
More than 20 redundancies
If an employer proposes to make 20 or more employees redundant, then he is under a statutory obligation to conduct a collective consultation.
This requirement to consult only applies if the number of dismissals are taking place in the same establishment or unit where the workers are assigned to carry out work.
The collective consultation period should begin at least 30 days before the first dismissal takes effect if 20 to 99 employees are at risk; or at least 45 days in advance if 100 or more employees are affected.
During the consultation period, employers should allow all employees in the pool of selection, recognised trade unions and trade union representatives (if applicable) to take part in order to conduct a meaningful consultation. It must focus on ways to avoid or reduce the dismissals (such as placing staff of lay off or short time working) and mitigating any effects.
The consultation can end as long as the minimum period required has been completed and there has been meaningful consultation where the employer has considered and responded to the views and suggestions raised – there is no requirement to reach an agreement during the consultation period.
Fewer than 20 redundancies
In situations where fewer than 20 redundancies are proposed, a consultation exercise should be carried out with the affected employees – group consultation first, followed by individual meetings with those identified to be made redundant.
There is no specific length requirement for consultation in these smaller scale redundancies, however there is a requirement that the consultation is ‘meaningful’.
The topics of discussion during the consultation process will be the same as with a larger scale redundancy, and a failure to carry out a proper consultation exercise can mean that the employees involved could claim unfair dismissal.
This can be the case even though the end result of the exercise was inevitable e.g. if the workplace was closing down completely.
Following the consultation period
Once you have identified the pool of selection, and the consultation has ended in collective redundancies, the next step is to use a selection criteria to identify which positions should be made redundant.
This is most effectively done by carrying out a scoring exercise to see which employees are the most valuable to the organisation.
The selection criteria for this scoring exercise must be objective and applied fairly to reduce the risk of possible discrimination claims. Employees should be able to see their scores.
Any staff which are selected for redundancy are entitled to receive adequate notice and redundancy pay. Redundancy notice period is usually the same as if you are terminating the contract of employment, unless there is an alternative contractual agreement.
Calculating statutory redundancy payments
Along with notice pay, all employees with at least 2 years’ continuous employment must receive a statutory redundancy payment. The amount of this payment depends on the employee’s age, length of service and their weekly pay.
If there is no enhanced contractual entitlement, the redundancy payment is calculated as follows:
- Half a week’s pay for every full year of employment when the employee was under 22 years
- One week’s pay for every full year of employment they were 22 or older but under 41 years
- One and a half week’s pay for every full year they were 41 or older.
This is subject to a limit of 20 years’ service taken into account and an upper limit on ‘weekly pay’ which currently stands at £479. Also, there is a maximum cap of £14,370 for a single redundancy payment.
Employers should be aware that if an employee does not receive redundancy pay or if they disagree with the amount they can bring a claim at an employment tribunal within 6 months of the underpayment.
Employers must notify the Department for Business, Innovation and Skills (BIS) of the situation if they are undertaking a large number of redundancies. This must be done at least 30 days in advance where the number of proposed redundancies are between 20 and 99, and at least 45 days in advance if 100 or more redundancies.
About the author
This guide has been written exclusively for ByteStart by Peter Done, Managing Director of Peninsula Business Services – the UK’s leading specialist Employment Law, HR and Health & Safety service. Other employment guides Peter has written for ByteStart include;
- 7 Common HR Mistakes small businesses need to avoid making
- Becoming an employer – Your responsibilities when you hire staff
- A small business guide to annual leave entitlement for employees
- A Guide to calculating holiday pay
- A practical guide to flexible working rights for small businesses
- Managing staff sickness absence – A Guide for small businesses
- How to handle disciplinary issues in the workplace
- A guide to dealing with workplace bullying
- What is workplace diversity, why is it important, and what are the benefits to businesses?
More help on managing staff
ByteStart is packed with guidance on a wide range of staff-related issues. For more help try some of our other guides;
- What is employers liability insurance, and is my business legally required to have cover?
- How to prepare for and handle an employee grievance
- Health & Safety compliance for small businesses – where do you start?
- How to manage anxiety and depression in the workplace
- How should you handle social media as a small business employer?
- The ‘Fit for Work’ scheme – what it means for employers
And these will help you to motivate and keep great staff;
- Using staff benefits to motivate and retain employees
- How to design an effective incentive scheme for your small business
- 5 ways to motivate your staff without spending a fortune
- How setting up a salary sacrifice scheme can reward staff and mean lower tax bills for employers and employees
- How businesses can encourage a healthy work/life balance and benefit from more engaged and productive employees
- 5 tips to help you create a great team at your start-up