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Making redundancies: A guide for employers

Photograph of Nick Renaud-Komiy

Written by Nick Renaud-Komiya , Personal finance specialist

16 June 2020

Here’s what you need to know about the process of making staff redundant and the support available if your business is struggling.

Graphic of guide

As things change rapidly during the coronavirus (COVID-19) crisis, this guide will be updated regularly to reflect changes in rules and regulations.

What help is available to avoid making redundancies? 

If your business is struggling due to the impact of Coronavirus, there are a range of government-backed financial assistance schemes. These include: 

The Bounce Back Loan Scheme (BBLS).

The BBLS helps small and medium-sized firms impacted by COVID-19 to borrow between £2,000 and up to 25% of turnover. The maximum loan available is worth £50,000.

The Coronavirus Business Interruption Loans Scheme.

This scheme is aimed at small or medium-sized businesses with a turnover of up to £45 million.  

Read our guide on financial help for employers affected by Coronavirus.

 Make sure you know the rules when planning redundancies 

As the government’s Coronavirus Job Retention Scheme is set to wind down in autumn, many firms are having to make tough decisions to let staff go to save costs. Other employers may go out of business altogether. 

When planning to make employees redundant, you need to be sure that you’re following all the relevant laws around the process: 

  1. Conduct consultations about your plans with staff in line with employment law

  2. You should use a fair and objective way of selecting which employees for redundancy 

  3. If at all possible, try to find the employee(s) suitable alternative employment within your organisation

  4. Ensure you can at least cover the costs of Statutory Redundancy Payments for the affected staff 

  5. Allow a sufficient notice period for staff being made redundant  

Consulting with your employees 

When drawing up plans to make staff redundant you need to hold a consultation with employees. This means sitting down with them to explain your plans and to get their views and input.  

Your plans shouldn’t be finalised at this stage. ACAS suggests that you should aim to include any employees’ suggestions that you feel are reasonable and that you agree with. 

You should also discuss ways to avoid or reduce the redundancies, how to reduce the effect of the redundancies, and how the firm can restructure or plan for the future.

You should also explain how employees are selected for redundancy.If you are not able to meet with your employees in person due to Coronavirus, you still have to consult them.

This could be done remotely, for instance via video chat or conference call.This is a difficult process, so try and be as sensitive as you can to your employees’ circumstances when carrying out the consultation.

It’s important to note that the consultation process needs to include all employees who could be potentially affected.

This can include workers who are not going to lose their jobs.You must also ensure that you consult employees who are on maternity and paternity leave.

If you’re planning to make 20 or more employees redundant from the same workforce, this constitutes a ‘collective redundancy’.

There are distinct rules you need to follow in this situation. For example, you also need to consult with an elected staff representative or official from a recognised trade union. 

If more than 20 employees are being made redundant the consultation must start at least 30 days before any dismissals take place.  

Where more than 100 staff are made redundant, the consultation must start at least 45 days before. 

ACAS has produced a detailed guide for employers with information on handling large-scale redundancies

Selecting employees for redundancy

 As mentioned above, you must find a fair and objective way to select who to make redundant.

Commonly used methods include:

  • Employees who have joined most recently (the shortest ‘length of service’)

  • Asking for volunteers 

  • Comparing employees’ disciplinary records

  • Staff appraisal records, skills, qualifications and experience 

There are some circumstances where a selection process for redundancies does not need to be followed. For example: 

  • If you are closing down a whole operation or department in a company and making all the employees working in it redundant

  • If there is only one employee in their part of the organisation 

But you still have to ensure the process of making these employees redundant follows the rules and respects their employment rights. 

You cannot under any circumstances select employees for redundancy in a discriminatory way. 

The Government’s Advisory, Conciliation and Arbitration Service (ACAS) has detailed advice on how to make the process of selecting employees for redundancy as fair and open as possible.  

ACAS also says that you must not select employees for redundancy just because they’re shielding from the Coronavirus pandemic. This may constitute disability discrimination. 

Read more about how to help your business survive COVID-19 and what help is available.

 Covering redundancy payment costs 

Legally, you need to give each affected employee a minimum amount of money if they have been working continuously for you for over 2 years.     

This is called the Statutory Redundancy Payment (SRP). The amount of SRP a departing employee will be entitled to will vary based on several factors, including:

  • Their age

  • The amount of time they’ve been working for you (often called ‘length of service’)

  • Their current weekly wage

The SRP is currently capped at a maximum of £16,140 (or £16,800 in Northern Ireland). 

The amount you need to pay out is calculated in the following way. You need to pay at least:

  • 0.5 week's pay for each full year of service when the employee was under 22

  • 1 week's pay for each full year of service when the employee was aged between 22 and 41

  • 1.5 week's pay for each full year of service where the employee was over the age of 41

The Government caps the weekly wage covered by SRP at £538 per week (£560 in Northern Ireland). Length of service is capped at 20 years. 

This is of course only a minimum legal requirement, and so many employers offer more generous redundancy packages to outgoing staff.

If you cannot pay employees’ redundancy payments

If your business is in a bad financial situation and you afford to pay your employees’ Statutory Redundancy Payments, there may be some financial assistance available.

You can apply to the Redundancy Payments Service (RPS), for help covering these costs. The RPS is part of a government body called the Insolvency Service

If your application is approved then the RPS will make statutory redundancy payments to the affected employees directly.

But note that you should only apply for this help if you definitely cannot cover these costs yourself.

Get more details on how the Redundancy Payments Service works.