Employee guide to redundancy part 1 – how redundancy works

18 June 2021

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 if part or all of the organisation is closing or changing location, or they are changing the types or number of roles needed to do certain work.

How does the redundancy process work?

If your employer is proposing 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, letting go of temporary or agency workers, limiting or stopping overtime, voluntary redundancies and voluntary early retirement
  • Details of redundancy pay and any benefits
  • Information on potentially moving employees into other roles and any 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. They also must start to engage with employees in a consultation process early enough for meaningful consultation to take place. Further information on selection and consultation can be found in our Employee Guide to Redundancy Part 2 – Consultation and Selection.

If you have been advised that your role is at risk of redundancy, our employment solicitors can explain the redundancy process to you, including the steps your employer will be expected to take in your specific situation. We can also provide you with practical advice on what you should do next.

If you have gone through a redundancy process and believe that you may have an unfair dismissal claim, then we can also advise you on this.

Redundancy pay

All employers are legally obliged to pay statutory redundancy pay to employees with at least two years continuous service, when their roles are made redundant. Some employers may offer a better redundancy package though, which is referred to as an enhanced redundancy payment. This will be specified in your contract of employment.

If an enhanced redundancy payment is offered, it is likely that your employer will ask you to sign a settlement agreement. You should seek professional legal advice on the terms and effect of signing a settlement agreement. Our employment team can assist you with this.

Statutory redundancy pay applies to all employees who have been employed by their current employer for 2 years or more, and is calculated based on length of service and 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 £571 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.

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