Redundancy can be a complicated, negative and stressful experiences for a business owner. As an employer, you have a legal obligation to follow correct procedures and to ensure you treat all staff fairly. There are three main reasons for redundancy. It could be due to: The employer has stopped (or will stop) running their business....
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Redundancy can be a complicated, negative and stressful experiences for a business owner. As an employer, you have a legal obligation to follow correct procedures and to ensure you treat all staff fairly.
There are three main reasons for redundancy. It could be due to:
In this article, we are going to look into redundancy, redundancy pay and what you, as an employer, need to do for your employees. If you need immediate support, get in touch with one of our experts on 0800 470 0613.
Redundancy is a form of dismissal that occurs when employers are in a position where they have to reduce their workforce or expenses.
Including the reasons above, redundancy could also occur when a new technology or system is developed, making certain positions redundant.
Redundancies can fall into two categories:
This is when you dismiss less than 20 employees from one establishment.
This is when you are dismissing 20 or more employees from one establishment in a 90-days or less. This is sometimes called mass redundancy.
Each type of redundancy can occur at any time, but collective redundancy often happens when a business or building closes down, relocates or when the company goes through a restructure.
Following the Employment Rights Act 1996, employees’ redundancy rights extend to entitlements when you are considering making them redundant.
They are entitled to;
When you are making employees redundant, you are required to follow certain steps to ensure that the process is completed fairly. Employers need to also check if they are subject to any contractual redundancy process.
The process should include:
Determine the reason for the redundancy, for example,
Determine which roles are at risk of being made redundant.
Inform all employees who will be affected by the prospect of redundancy. They will need to explain the reasons and the business case for the proposed redundancies.
Decide the selected criteria, this is only if there is a pool of employees from which some redundancies need to be made. Objective criteria could include:
You need to be aware of the criteria that can’t be used as selection criteria.
At this stage, you need to notify the Redundancy Payments Service (RPS) before you start your consultation meetings.
Employers need to notify the Secretary of State on Form HR1 only if they propose to dismiss as redundant, 20 or more employees at one establishment within a 90 day period.
Conducting individual consultations, collective consultations, or trade union rep meetings for feedback on the selection criteria with the employees who are affected.
Score each employee in the redundancy pool based on the criteria set out above.
Follow up with another consultation meeting to run through the scoring process and to collect any information pertinent to their selection for redundancy.
Considerations for suitable alternative work within the company.
Employees who inform their employers that they are pregnant since 6 April 2024, or those on maternity leave and for 18 months after birth, have the right to be offered suitable alternative employment, where it exists, ahead of anyone else. The enhanced treatment also applies to adoption and shared parental leave arrangements.
Inform employees of your decision to make them redundant. – remember you need to confirm your decision in writing.
Remind employees of their right to appeal.
You need to make sure you follow these steps to avoid an unfair redundancy claim in an employment tribunal.
The principles that govern fair process in redundancy cases are those established by case law. If there is a contractual redundancy process that needs to be followed as well, if there is one but it isn’t followed then a claim of breach of contract could be brought.
As an employer, you need to prove and show that you have followed a fair selection process and consulted in a meaningful way, and prove you haven’t based the decision on an individual’s protected characteristic.
Once you’ve made an employee redundant, they may be entitled to statutory redundancy pay.
When you’re calculating an employee’s redundancy payment, you can either use an online redundancy calculator or use the quick calculation below to calculate redundancy pay of your employees.
It’s an important point to remember, that you need to take into account a capped amount of 20 years of continuous service when calculating their statutory redundancy pay.
If you need to work out your employee’s redundancy pay, you can use an online redundancy calculator.
Yes, there are two types, statutory and contractual redundancy pay.
This is a payment that as an employer you agree to pay when you’re making your employees redundant. This is usually agreed to within the employment contract or staff handbook, some employers may not offer contractual redundancy, in which case it is just the statutory redundancy pay that employers need to pay, if the employee has over 2 years of service.
Contractual redundancy pay is usually paid on top of the statutory redundancy payment, this can be paid to short-service employees.
Contractual redundancy pay can’t be lower than the statutory redundancy payment.
This is the legal minimum you must give your employees, if they have over 2 years of service.
Your employee’s statutory redundancy pay is calculated based on multiple factors. These can include:
Yes, there is a cap to the statutory redundancy payment.
The redundancy payment is capped at £700 per week’s pay (April 2024), and the maximum statutory redundancy pay is capped at £21,000.
As an employer, you should make the redundancy payment once the employee’s employment ends. Employee has a period of 6 months from effective date of termination to bring a claim for failure to pay redundancy payment.
Not all employees are automatically entitled to redundancy pay. To claim statutory redundancy employees must either
An employee may be entitled to contractual redundancy pay if it is a term of their contract.
As an employer, you need to show that you’ve been thorough when you are selecting employees to make redundant. Through this process, you should give your staff a notice period and a leaving date once you’ve finished the redundancy consultations.
Yes, a statutory notice period is based on when their employment contract started. Employers need to check the employees contract to see if there is a contractual notice period, meaning that the notice period is more than the statutory notice period.
For example, an employee who has worked between 1 month and 2 years of service, must be given at least a week’s notice to dismiss.
For any employee with 2 years of service to 12 years of service, you need to give them a week’s notice for every year of service. In short, if an employee has 12 years of service, they have a 12-week notice period. If an employee has 12 years or more service the statutory notice is capped at 12 weeks.
Any redundancy payments paid to employees that are under £30,000 are tax-free and don’t require the employee to pay tax.
If at the time of redundancy, you owe staff members holiday pay or wages and national insurance, deductions apply.
This term is used when you terminate an employee’s contract with immediate effect and give them notice pay.
This can only apply if there is a contractual clause in the employment contract that allows the employer to do so.
This is simple to calculate. Pay your employee the normal week’s pay, they would have received during their notice period.
During this process, you can decide to pay your employees extra payments, such as pension contributions, or private health care insurance, depending on what their contract says.
If you are in the position of having to make staff redundant, take a look at our comprehensive guide to redundancy.
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