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Making someone redundant: The Small Businesses Guide

Making someone redundant is one of the hardest things you'll ever have to do – and for the sake of your small business, you need to get it absolutely right. In this post, we'll show you how to run a redundancy process that's both in line with the law and fair on the employee.

What is redundancy?

Redundancy is the process by which an employer ‘lets someone go’ from their company when there’s no longer a business need for the work they are doing. It’s a very different thing to ‘firing’ someone, which implies that the employee has done something wrong – when someone is made redundant, it’s simply because their role no longer exists.

One of the tough realities of running a small company is that the business landscape is always shifting. While a particular role could be absolutely essential during one stage of a company’s lifecycle, that might not always be the case.

Perhaps business priorities change, maybe the company goes through a tough time financially or it decides to change the way that it does work. In any case, there'll often come a point when a particular role is no longer needed.

When that happens, you can’t just fire the person doing that job. Not only is it unfair, it’s also illegal. Instead, you need to take your company through a step by step redundancy process.

This isn’t just about keeping your business on the right side of the law (although that’s an important aspect). It’s about handling the redundancy process in a way that’s fair, considerate and respectful of the person you’re letting go from the company.

Avoiding redundancies

The first step in a redundancy process is trying to make sure that it doesn’t need to happen at all.

Before you get as far as making someone redundant, there are all sorts of measures you need to consider to see if it can be avoided. If saving money is the objective, then there are all kinds of ways of cutting costs that don’t extend to letting people go. Cheaper office space, withdrawing perks and benefits or Learning and Development budgets are all valid options.

There are also methods of cutting staffing costs that don't go as far as making full on redundancies. That could mean:

  • Reducing your use of freelancers or casual labour
  • Slowing down recruitment in other areas of the business
  • Reducing or eliminating overtime
  • Moving the employees whose jobs no longer exist into other areas of the business
  • Short-time working (when an employee works reduced hours)
  • Offer some employees early retirement (with incentives to encourage them to take the offer)

Non-compulsory redundancy (or voluntary redundancy)

Non-compulsory redundancy is where you ask your employees if you’d they’d like to volunteer for redundancy.

For some people, at certain stages of their life, voluntary redundancy might be an attractive option. They could be contemplating a career change, or perhaps approaching a crossroads in a different aspect of their life. In any case, giving people who are open to redundancy the chance to take it helps you protect the team members who are depending on these jobs more.

Compulsory redundancy, or involuntary redundancy

If, after taking measures to prevent redundancy and going through a voluntary redundancy process your company still needs to let some people go, you would move on to compulsory redundancy.

Making someone redundant

If you decide that your company needs to make involuntary redundancies, then you need to move through a step by step redundancy process.

Redundancy process – the step by step guide

It’s worth making one thing clear, straight off the bat – for a redundancy to be genuine, you’ll need to be able to demonstrate that the employee’s job no longer exists. You can’t use a redundancy process simply as a way of moving someone out of the business.

For that reason, the way your company makes decisions about who is made redundant needs to be as transparent as possible. That is achieved via a redundancy consultation.

Running a redundancy consultation

Redundancy consultations aren’t an optional step in this process. If you make any redundancies without going through a consultation process, those redundancies are almost certainly going to be unfair – and you risk being taken to an employment tribunal.

This process starts with notifying all of the employees in your company that you are entering into a redundancy consultation. That means informing them of:

  • The business reasons for the redundancies
  • The number of redundancies you are expecting
  • What parts of the business will be affected
  • How you plan to select employees for redundancy
  • How you’ll carry out redundancies
  • How you’ll work out redundancy payments

You will also need to specifically notify the employees who could be affected that they could be looking at redundancy, setting this out in an ‘at risk of redundancy letter’. If you’re not sure how to put that together, then you can download a free ‘at risk of redundancy letter template by clicking below.

At risk of redundancy letter template

Next, you need to identify which employees are going to be made redundant. Your process for making this decision has to be a fair one – you can’t discriminate according to who you’d personally prefer to see stay or go.

A fair selection criteria for redundancy would include things like:

  • An employee’s skills or qualifications
  • Their aptitude for their role
  • Their historical standard of performance
  • Their attendance or disciplinary record
  • Their length of tenure at the business

On the other hand, some selection criteria are automatically unfair (and illegal). You mustn’t choose an employee for redundancy based on any of the following reasons:

  • They are pregnant
  • They make use of statutory or contractual parental leave
  • They have been acting as a trade union representative, or have joined a trade union
  • Their age, disability, gender, or marriage and civil partnership status
  • Their religion, belief, or sexual orientation

It’s also worth bearing in mind that redundancy consultation becomes more complicated if you are looking at making over 20 people redundant. If that’s the case, you’ll need to contact the Redundancy Payments Service before your consultation begins.

Once you’ve completed the redundancy consultation, you need to notify the employees that you plan to let go of your decision and your reasons for it. The best – and fairest – way of doing that is by a face-to-face meeting.

What to say when making someone redundant

The first thing to know about this conversation is that it’s going to be much harder than simply firing someone. When it comes to firing, there’s often at least a degree of emotion to the decision that can help pull you through the difficult moment.

But when it comes to redundancies, that person hasn’t done anything wrong. They could well be really good at their job – it’s just that their job doesn’t exist anymore. To the employee, this will seem incredibly unfair.

When you have the meeting to notify someone of their redundancy, don’t drag out the conversation. Tell them in your first sentence what you have decided, and then go into the business reasons for your decision. Trying to sugarcoat the news by painting the business picture first is only going to make the conversation more painful.

“I want to be honest with you. The role that you currently do is no longer going to exist so we have to make you redundant.”

When you do go into your reasoning, try and keep the conversation as impersonal as possible. Keep the conversation within the frame of business logic – remember, this isn’t about them or their performance, it’s just that their job no longer exists.

End by explaining to them the support that your business is able to provide to help them find a new role. Career advice from senior members of your company, intros to other businesses where there might be a suitable role, time off from work to make applications – all these things will help make sure the employee lands gently.

You should follow up on this meeting with a redundancy letter, setting out your decision and reasoning in writing. If you’re looking for a redundancy letter template, then you can download one for free by clicking the link below.

Redundancy letter template

How much notice to make someone redundant?

You also need to make sure that you notify them of your decision with enough notice.

The amount of notice you are obliged to give depends on how long they have been working for you.

  • 1 month to 2 years = at least a week
  • 2 years to 12 years = a week’s notice for every year they’ve worked for you
  • 12 years or more = 12 weeks

How does redundancy pay work?

When we talk about redundancy pay, we’re really talking about two things.

  1. Notice pay (or payment in lieu of notice)
  2. Statutory redundancy pay

What is notice pay?

Notice pay is simply the employee’s standard pay or salary, which you are obliged to continue paying for the duration of their notice. However, you can also let this person leave the business before their notice is up by paying their notice pay in advance (payment in lieu of notice).

What is statutory redundancy pay?

UK law sets out a certain minimum level of statutory redundancy pay which employers are obliged to abide by. To be eligible for statutory redundancy pay, an employee needs to have been employed with you for two years.

How to calculate redundancy pay

Statutory redundancy pay is calculated through a combination of the employee’s age and the length of their tenure. Here’s how it works:

Employees are entitled to:

  • 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

The upper limit on the amount of statutory redundancy pay is £15,750.

How long after making someone redundant can you employ someone else?

There are no hard and fast rules around how long you should after making redundancies before you hire someone else. It’s a slightly murky area, and for that reason, it’s worth thinking carefully before you hire anyone again.

While there’s no specific law that prohibits you from rehiring after a redundancy, where you could get in trouble is if you are misusing the redundancy process to get rid of someone and hire someone else. The redundancy process is designed to allow businesses to let people go when there is no longer a business requirement for the role – if the redundancy happens for any other reason, it is not a genuine redundancy and the employee could take you to court for wrongful dismissal.

Many employers get caught out by making redundancies and then re-advertising for the same (or very similar) roles soon after. Unless those companies can provide a good explanation – such as winning a new contract, or similar – employment tribunals might well rule those redundancies as non-genuine and find that those employers were wrongfully dismissed.

But as long as those redundancies were made for legitimate reasons and there is a genuine business need to rehire, there shouldn’t be any problem with you bringing on new staff.

Running a redundancy process that’s both in line with the law and fair on the employee is a difficult thing to get right. This guide is a good place to start, but if the situation you’re dealing with is more complicated or you need direct advice on how to proceed at your company, think about getting in touch with our HR Advice service.

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