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Redundancy is when you dismiss an employee because you no longer:

  • carry out the business for which they are employed

  • carry out the business in the place where they are employed

  • require them to carry out work of a particular kind

For a redundancy to be genuine, you must demonstrate that the employee's job will no longer exist.

Redundancy Selection - Non Compulsory

Non-compulsory redundancy covers voluntary redundancy and early retirement.

Voluntary Redundancy

You could ask employees if they would like to volunteer for redundancy and then select those to be made redundant.

The advantages:

It is less demoralising and disruptive than compulsory redundancy and helps identify employees who are willing to accept redundancy.

The disadvantages:

It could work out to be more expensive - you may need to offer enhanced redundancy payments to attract people to leave.

There is also the risk that employees not granted their voluntary redundancy request may react negatively, and you could also end up with an imbalance of skills and experience.

Early Retirement

You can offer incentives to employees to retire early.

Giving incentives for early retirement is often an acceptable alternative to redundancy for employees and trade unions and may be less harmful to employee morale than compulsory redundancy.

Redundancy Selection - Compulsory

If you decide to make compulsory redundancies you will need to:

  • create an objective and non-discriminatory redundancy selection criteria

  • identify which employees will be made redundant

The criteria that can be used to select employees for redundancy can include:

  • skills, qualifications and aptitude

  • standard of work performance

  • adaptability

  • attendance/disciplinary record

Be consistent with your selection criteria to avoid the possibility of unlawful discrimination.

Automatically Unfair Selection Criteria

Some criteria will make any subsequent redundancy dismissal automatically unfair. You should not select an employee for redundancy because of issues related to:

  • trade union membership

  • legal industrial action lasting up to 12 weeks

  • being an employee representative

  • actions taken on specified health and safety grounds

  • pregnancy, maternity, paternity, adoption and parental leave

  • regulations on part-time workers

Rights of Redundant Employees

Redundant employees have a number of rights and are entitled to receive a statutory redundancy payment (SRP).

The Right to Receive a Statutory Redundancy Payment

To receive a statutory redundancy payment, an individual must:

  • be an employee working under a contract of employment

  • have at least two years' continuous service

  • have been dismissed, laid off or put on short-term working- those who opted for early retirement do not qualify

A redundant employee also has the right to receive a written statement setting out the amount of any redundancy payment and how you worked it out.

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

How is a SRP Calculated?

A statutory redundancy payment, is based on an employee's age and length of employment and is counted back from the date of dismissal. Employees receive:

  • 1.5 weeks' pay for a year of employment after their 41st birthday

  • one week's pay for a year of employment after their 22nd birthday

  • half a week's pay for a year of employment up to their 22nd birthday

Their length of service is capped at 20 years. Weekly pay is subject to the statutory limit which is 430. The maximum statutory redundancy payment, payable is 12,900.

Taxation of SRPs

Statutory redundancy payment is not taxable, as it's not more than 30,000. Any redundancy payment you make in addition to SRP is subject to tax and National Insurance (NI).

Other termination payments made to the employee at the same time - like a payment in lieu of holiday - must have tax and NI deducted.

Failure to make a SRP

If an employee disagrees with the amount, or you fail to pay SRP, the employee has six months from the date their employment ended to make a claim for payment to an employment tribunal.

If they fail to make the claim in time, a tribunal still has the power for a further six months to decide whether or not the employee should receive a statutory redundancy payment .

If you cannot pay, the employee can apply to the Department for Business, Innovation & Skills for a direct payment from the NI Fund.

However, they must have applied in writing to you for a payment within six months of their employment ending, or applied successfully to an employment tribunal within the six months after that.

Other Redundancy Rights

Employees under notice of redundancy also have the right to:

  • be offered suitable alternative employment

  • have a trial period in the alternative employment without losing their right to an SRP

  • reasonable time off to look for a job or to arrange training

  • not be unfairly selected for redundancy

  • Potential problems following redundancy

An employee can claim unfair dismissal if they feel you:

  • have unfairly selected them for redundancy or incorrectly applied the selection criteria

  • failed to offer suitable alternative work where it was available

  • didn't follow the proper consultation process

Employees may also be able to claim a protective award if you fail to properly consult with their representatives, ie trade union or elected employee representatives in collective redundancy situations.

The Department for Business, Innovation & Skill (BIS) may prosecute you for failure to notify the proposed redundancies in advance.

Failure to Properly Consult

If you fail to properly carry out collective redundancy consultation, a complaint may be made to an employment tribunal by:

  • a trade union or elected employee representatives

  • individual employees who have been dismissed as redundant

The tribunal may award up to 90 days' pay to each affected employee.

BIS may also prosecute you for failure to notify the proposed redundancies in advance.

Financial Problems

If your business would become insolvent as a result of making the statutory redundancy payments, the Insolvency Service's Redundancy Payments Office (RPO) may be able to help, but you will be expected to repay the debt as quickly as possible. They can also help if you become formally insolvent and fail to pay the employer's contributions into an occupational or personal pension scheme or owe pay in arrears.

We would recommend that you consult a employment solicitor before making any employee redundant. For further information on Redundancy please complete the enquiry for at the top of this page or search for a solicitor using the drop down menu.


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