Employee Guide to Redundancy Part 1 – How Redundancy Works
05 January 2018
What is Redundancy?
Redundancy is a form of dismissal from employment which happens when an employer needs to reduce their workforce. This could be for a number of reasons, including:
- A reduction in workload
- Work being contracted out
- Change in ownership of the business
- Changes in the conditions of the role or new technology making the role unnecessary
- The closure of the business
- The relocation of the business.
How Does the Redundancy Process Work?
If your employer needs to make redundancies, then they should follow a set procedure to ensure that the process is fair, that employees are kept informed and that any alternative options to redundancy are considered. If your employer does not follow a reasonable procedure then they could risk facing an unfair dismissal claim from affected employees.
Most employers will have a formal redundancy policy or procedure in place. This will help to ensure that the redundancy process is clear for everyone affected and that all relevant information is at hand and accessible. Redundancy is a stressful and difficult process for both the employee and the employer, so having robust, transparent redundancy processes in place can make the experience less stressful on both sides.
Most formal redundancy procedures will include:
- Measures the employer will take to maintain employees’ job security
- Details of consultation periods and who will be involved in consultations
- Details of the selection criteria for redundancy
- Measures the employer will take to minimise compulsory redundancies, such as recruitment freezes, voluntary redundancies and voluntary early retirement
- Details of redundancy pay and any benefits
- Information on potential relocation opportunities
- Details of the redundancy appeals process
- Guidance on how the employer will assist employees with their job search (such as time off for interviews or additional training).
When making redundancies, employers are expected to follow fair and reasonable selection procedures, and also to engage with employees in a consultation process. Further information on selection and consultation can be found in our Employee Guide to Redundancy Part 2 – Consultation and Selection.
All employers are legally obliged to pay statutory redundancy pay to employees when their roles are made redundant, though some employers may offer a better redundancy package. This will be specified in your contract of employment.
Statutory redundancy pay applies to all employees who have been employed by their current employer for 2 years or more and are calculated based on your length of service and your age.
Currently, the statutory minimum redundancy payment is calculated as follows:
- For each year of employment that the employee was under 22 they will receive 0.5 week’s pay
- For each year of employment that the employee was between the age of 22 and 40 they will receive 1 week’s pay
- For each year of employment that the employee was over 41 they will receive 1.5 weeks’ pay.
Redundancy payments are capped at 20 years’ service and also capped at a weekly maximum pay rate of £489 per week.
Paid Notice Period
Employees are also entitled to a statutory minimum notice period if their role is made redundant. This is calculated as follows:
- Employees that have been employed for more than 1 month but less than 2 years will receive 1 week’s paid notice
- Employees that have been employed for more than 2 years but less than 12 years will receive 1 week’s paid notice for each year
- Employees that have been employed for more than 12 years will receive 12 weeks’ paid notice.