Making staff redundant

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1. Overview

Redundancy is when you dismiss an employee because you no longer need anyone to do their job. This might be because your business is:

  • changing what it does
  • doing things in a different way, for example using new machinery
  • changing location or closing down

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

Redundancies can be compulsory or non-compulsory. If you do have to make redundancies you can get help from Jobcentre Plus.

Employee rights

Employees have certain rights and may be entitled to redundancy pay if they’re made redundant.

All employees under notice of redundancy have the right to:

  • reasonable time off to look for a new job or arrange training
  • not be unfairly selected for redundancy

You should always take steps to avoid redundancies before dismissing staff.

Alternative employment

Employers must try to find suitable alternative employment within the organisation for employees they’ve made redundant.

Employees can try out an alternative role for 4 weeks (or more if agreed in writing) without giving up their right to redundancy pay.

2. Avoiding redundancies

You should take steps to avoid compulsory redundancies, for example by:

Offers of alternative work

If you’ve selected someone for redundancy, you must try to find them a suitable alternative job.

Some employees have a right to be offered suitable alternative jobs even if other colleagues are more suitable for the role.

You must first offer any suitable alternative jobs to employees who are:

  • pregnant
  • on or returning from maternity leave
  • on or returning from adoption leave
  • on Shared Parental Leave
  • returning from at least 6 continuous weeks Shared Parental Leave

Employees returning from maternity leave, adoption leave or at least 6 weeks Shared Parental Leave have the right to alternative job offers for 18 months from the date their child was born or adopted.

For example, an employee returning from maternity leave 12 months after the birth of their child will have the same right for 6 months after returning to work.

Some employees only have the right to be offered a suitable alternative job up until they return to work. This applies if an employee:

  • is taking less than 6 continuous weeks Shared Parental Leave
  • returned to work before 6 April 2024

Making a valid offer

For an offer to be valid:

  • it should be unconditional and in writing
  • it must be made before the employee’s current contract ends
  • it should show how the new job differs from the old
  • the job must actually be offered to the employee - they should not have to apply
  • the new job must start within 4 weeks of the old job ending

Having a trial period

Employees who accept an offer of alternative work are allowed a 4-week trial period to see if the work is suitable. If you both agree that it is not, they can still claim redundancy pay.

The trial period can be longer than 4 weeks if you agree this in writing.

If you think the job is suitable but the employee refuses to take it, they might lose any redundancy pay entitlement.

3. Lay-offs and short-time working

You can lay off an employee (ask them to stay at home or take unpaid leave) when you temporarily cannot give them paid work - as long as the employment contract allows this.

Short-time working is when an employee works reduced hours or is paid less than half a week’s pay.

Laying off staff or short-time working can help avoid redundancies - but you have to agree this with staff first.

This could be in:

  • their employment contract
  • a national agreement for the industry
  • a collective agreement between you and a recognised trade union

National and collective agreements can only be enforced if they’re in the employee’s employment contract.

You may also be able to lay off an employee or put them on short-time working:

  • where you have clear evidence showing it’s been widely accepted in your organisation over a long period of time
  • if you agree with the employee to change their employment contract to allow them to be laid off or put on short-time working (this will not automatically give you the power to do this without their consent in the future)

Statutory guarantee payments

Employees are entitled to these if you do not provide them with a full day’s work during the time they’d normally be required to work.

The maximum payment is £31 a day for 5 days (£155) in any 3 months. If employees usually earn less than £31 a day, they’ll get their usual daily rate. For part-time workers, the rate is worked out proportionally.

Employees can claim a redundancy payment from you if the lay-off or short-time working runs for:

  • 4 or more weeks in a row
  • 6 or more weeks in a 13 week period, where no more than 3 are in a row

They must give you written notice in advance that they want to make a claim.

You do not have to pay if they’ll return to normal working hours within 4 weeks.

If you do not give guarantee pay to someone who’s entitled to it, they could take you to an employment tribunal.

There’s more advice on lay-offs and short-time working on the Acas (Advisory, Conciliation and Arbitration Service) website.

4. Non-compulsory redundancy

Voluntary redundancy

This is where you ask employees if they’d like to volunteer for redundancy.

You must have a fair and transparent selection process and tell employees they will not automatically be selected just because they applied.

Early retirement

This is where you offer employees incentives to retire early. It is used as an alternative to voluntary redundancy.

The offer must be made across the workforce - you cannot single out specific individuals.

You cannot force anyone into early retirement - it must be the employee’s choice.

5. Compulsory redundancy

If you decide you need to make compulsory redundancies, you must:

  • identify which employees will be made redundant
  • make sure you select people fairly - do not discriminate

Fair selection criteria

Fair reasons for selecting employees for redundancy include:

  • skills, qualifications and aptitude
  • standard of work and/or performance
  • attendance
  • disciplinary record

You can select employees based on their length of service (‘last in, first out’) but only if you can justify it. It could be indirect discrimination if it affects one group of people more than another.

Do not rely on length of service as your only selection criteria - this is likely to be age discrimination.

Unfair selection criteria

Some selection criteria are automatically unfair. You must not select an employee for redundancy based on any of the following reasons:

  • pregnancy, including all reasons relating to maternity
  • family, including parental leave, paternity leave (birth and adoption), adoption leave or time off for dependants
  • acting as an employee representative
  • acting as a trade union representative
  • joining or not joining a trade union
  • being a part-time or fixed-term employee
  • age, disability, gender reassignment, marriage and civil partnership, race, religion or belief, sex and sexual orientation
  • pay and working hours, including the Working Time Regulations, annual leave and the National Minimum Wage

You should always consult employees in a redundancy situation.

6. Redundancy consultations

If you do not consult employees in a redundancy situation, any redundancies you make will almost certainly be unfair and you could be taken to an employment tribunal.

You must follow ‘collective consultation’ rules if you’re making 20 or more employees redundant within any 90-day period at a single establishment.

There are no set rules to follow if there are fewer than 20 redundancies planned, but it’s good practice to fully consult employees and their representatives. An employment tribunal could decide that you’ve dismissed your staff unfairly if you do not.

Consultation does not have to end in agreement, but it must be carried out with a view to reaching it, including ways of avoiding or reducing the redundancies.

Collective consultation

Follow these steps.

  1. You must notify the Redundancy Payments Service (RPS) before a consultation starts. The deadline depends on the number of proposed redundancies.

  2. Consult with trade union representatives or elected employee representatives - or with staff directly if there are none.

  3. Provide information to representatives or staff about the planned redundancies, giving representatives or staff enough time to consider them.

  4. Respond to any requests for further information.

  5. Give any affected staff termination notices showing the agreed leaving date.

  6. Issue redundancy notices once the consultation is complete.

Notification

Notify RPS by filling in form HR1. Instructions on where to send it are on the form.

The deadline for notifying RPS depends on the number of proposed redundancies.

Number of proposed redundancies When notification to RPS must be given
20 to 99 30 days before the first redundancy
100 or more 45 days before the first redundancy

You can be fined an unlimited amount if you do not notify RPS.

Consultation

There’s no time limit on how long consultations last, but there is a minimum period before you can dismiss any employees.

Number of proposed redundancies Minimum consultation period before dismissal
20 to 99 30 days
100 or more 45 days

Information you must provide to representatives or staff

You must provide written details of:

  • the reasons for redundancies
  • the numbers and categories of employees involved
  • the numbers of employees in each category
  • how you plan to select employees for redundancy
  • how you’ll carry out redundancies
  • how you’ll work out redundancy payments

Further information

Find out more about collective consultation for redundancy on the Advisory, Conciliation and Arbitration Service (Acas) website.

7. Giving staff notice

You must give staff notice and agree a leaving date once you’ve finished the redundancy consultations.

Give staff at least the statutory notice period, based on how long they have worked.

Length of service Notice you must give
1 month to 2 years At least a week
2 years to 12 years A week’s notice for every year employed
12 or more years 12 weeks

You can allow staff to leave earlier than the planned leaving date (for example without notice) by offering payment in lieu of notice.

Notice pay

You must give staff notice pay - based on their pay rate and notice period - or make a payment in lieu of notice.

Your employees’ notice pay is based on the average they earned per week over the 12 weeks before their notice period starts.

If your employees earned less than usual because you used the Coronavirus Job Retention Scheme to put them ‘on furlough’, you must work out their notice payments based on what they would have earned normally.

Pay in lieu of notice

If you have included a payment in lieu of notice clause in the employment contract, you can end your staff’s employment with no notice. This lets you make a payment to cover the notice period they would have worked.

These payments must have tax and National Insurance deducted.

When you make payments in lieu of notice, you still have to pay staff the basic pay they would have got during the notice period. You also have to pay pension, private health care insurance or other contributions if it’s in the employee’s contract.

8. Redundancy pay

Employees you make redundant might be entitled to redundancy pay - this is called a ‘statutory redundancy payment’.

To be eligible, an individual must:

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

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

Statutory redundancy pay rates

These are based on an employee’s age and length of employment and are counted back from the date of dismissal.

Employees get:

  • 1.5 weeks’ pay for each full year of employment after their 41st birthday
  • a week’s pay for each full year of employment after their 22nd birthday
  • half a week’s pay for each full year of employment up to their 22nd birthday

Length of service is capped at 20 years.

Your employee’s weekly pay is the average they earned per week over the 12 weeks before the day they got their redundancy notice.

If your employee earned less than usual because you used the Coronavirus Job Retention Scheme to put them ‘on furlough’, you must work out their redundancy payments based on what they would have earned normally.

Weekly pay is capped at £700. The maximum amount of statutory redundancy pay is £21,000.

Statutory redundancy pay rates may be different in Northern Ireland.

You can give your staff extra redundancy pay if you want to, or have a qualifying period of less than 2 years.

You can use the redundancy pay calculator to work out payments.

If you do not pay

If you fail to pay redundancy pay or if an employee disagrees with the amount, they have 3 months from the date their employment ended to make a claim for payment to an employment tribunal.

If an employee does not claim in time, a tribunal still has 6 months to decide whether or not they should get a payment.

If you have financial difficulties

If your business would become insolvent as a result of making the statutory redundancy payments, the Insolvency Service’s Redundancy Payments Service (RPS) may be able to help.

You’d have to repay any debt as soon as possible. Email the Redundancy Payments Service for more information. Include all of the following in your email:

  • your name
  • whether you’re the employer
  • whether you should be the main point of contact
  • the name of your business
  • your business address
  • number of redundancies

Redundancy Payments Service
RPS.FA@insolvency.gov.uk

9. Tax when making staff redundant

If you make staff redundant, you may give them a ‘termination payment’. This could include:

  • statutory redundancy pay
  • holiday pay
  • unpaid wages
  • company benefits, for example bonuses

You must deduct tax and National Insurance from some payments.

You do not deduct tax on the first £30,000 of statutory redundancy pay.

What you’ll deduct tax and National Insurance on depends on what’s included in the employee’s termination payment.

10. Getting help

If you have to make redundancies, Jobcentre Plus can give you and your employees support and advice through its Rapid Response Service.

Support could include:

  • helping people facing redundancy to write CVs and find jobs
  • providing general information about benefits
  • helping people to find the right training and learn new skills
  • helping with costs like travel to work expenses

Jobcentre Plus may also provide on-site support for large scale redundancies.

In Scotland, Rapid Response Service support is delivered through Partnership Action for Continuing Employment (PACE) - there’s more information on the Skills Development Scotland website.

In Wales, the service is delivered by the ReAct scheme.

You can also contact the Advisory, Conciliation and Arbitration Service (Acas) for more information and advice.

How to get help

To find out how your business can use the Rapid Response Service, email rrs.enquiries@dwp.gov.uk and include:

  • your contact details
  • the town(s) your business is based in (including postcodes)
  • the location(s) of the redundancies