An employee’s 101 guide to redundancy
News update - 31 July 2020
Under new laws that came into force on Friday 31 July, furloughed employees who are being made redundant will receive statutory redundancy pay based on their normal amount of pay and not their reduced furlough pay.
This legislation also applies to other employment rights, such as statutory notice pay and awards for unfair dismissal, which are calculated on the basis of an individual’s average weekly pay.
Read the full announcement from the government by following this link.
If you're a business owner working through the redundancy process, this guide is ideally placed to share with your employees, with the view to help them understand the process and to help answer some of the most common questions they may have.
Even in today’s Covid-19 situation, employers must still follow and apply a fair redundancy process to staff at risk of losing their jobs. Challenging though this will be for many employers struggling with cash flow and trading constraints, they must still treat you fairly.
The government has released a number of measures, including a job retention scheme, to try to minimise the number of jobs that are actually made redundant. Talk to your employer about how this might impact you if you are concerned.
Under this emergency scheme, the government will cover 80% of the salary of an ‘at risk’ employee, up to a cap of £2,500 per month, per employee. The government is calling these affected employees ‘furloughed employees’, meaning staff that employers would otherwise have to lay off or make redundant in the absence of this emergency 80% salary cover).
This arrangement is backdated to 1 March 2020 and will apply to the wages of affected staff for a period of 3 months (or possibly more if needed). For more details on the Job Retention Scheme click here. HMRC is developing a dedicated online portal to process applications and portals.
What is redundancy and when does it happen?
Redundancy is one way an employer might decide to terminate your employment contract with them.
It describes the situation where an employer concludes they need to reduce their employee base and one or more members of staff go.
There are two types of redundancy.
The first is simply called redundancy. The second is called ‘collective redundancy’, which is where 20 or more employees are at risk of redundancy. Slightly different rules apply to both.
And if the redundancy process is not handled fairly, it’s not a lawful redundancy and employees have a right to challenge their employer and, potentially, to claim compensation – perhaps even reinstatement.
Your employer’s staff handbook should contain a redundancy policy that will explain how your employer handles redundancy in your business. The policy should describe the process, your rights and the time frames that will be applied.
When does it arise?
If it’s legitimately applied to one or more employees, then redundancy typically arises because, for example, an employer:
genuinely no longer has any need for the employee’s role, which might be for a variety of reasons, e.g.:
- a project completing and/or not being repeated
- the need to do things differently, e.g. to replace manual or human resource with automated equipment or other technology
- having to shut down a unit, branch or department, perhaps due to a business decision to relocate operations somewhere else or in the aftermath of a merger or acquisition where the business has no need for two sets of the same employees
faces serious cash-flow issues, meaning that they can’t afford to keep every employee and have to run a process to determine who goes and who stays (in these cases, employees critical to keeping the business going will be those retained until last)
Compulsory vs voluntary
Redundancy may not be a choice for many employees whose jobs are identified as being at risk. However, employees can volunteer to take redundancy in particular circumstances, where a redundancy process is underway, and there can be benefits to doing so (we’ll cover these later in this guide).
For eligible employees, another voluntary alternative to redundancy is to take early retirement. (Where early retirement is an option, it must be offered across the entire workforce and not just to particular individuals.)
Redundancy is not the same as lay-offs and short-term working
If your business experiences a shortage of work for employees, but management expect it to only be a temporary dip (i.e. not a significant lack of work that would warrant redundancy), they may instruct you not to attend work for a set period of time (known as a layoff) or to only come into work for a few days or hours per week (known as short-time working).
They can only do this if you have a clause in your employment contract that allows them to make use of layoffs and short-time working. If your contract contains this clause, you're legally obliged to work to the new (temporary) arrangements.
N.B. If the contract doesn’t have this wording, your employer can put in place these arrangements with your permission, ideally in writing. If they impose this without you having consented to it, they'll be in breach of the employment contract with you (and you may be justified in bringing what’s called a ‘constructive dismissal’ action against them).
‘Constructive dismissal’ is where an employer imposes terms on you that aren't contractually permitted. If you feel you've no choice but to resign as a result of this, and you do resign, you could bring a claim against your employer alleging you were essentially dismissed as a result of them imposing these unlawful terms on you.
If you’re laid off or put on short-term working arrangements, you won’t receive your full pay during this period. But there may be other payments and rights you could be entitled to in these circumstances. Take a look at the government’s latest advice and commitments for employees here.
What rights do you have as an employee?
Employees have a number of rights if redundancy is being considered by their employer. Some of these rights will depend on the number of employees who may be affected by the redundancy.
All employees have rights set out in the following sections of this guide.
1. To only be treated under a redundancy process if their job(s) is/are genuinely no longer needed.
If this isn't the fact, this isn't a genuine redundancy situation.
For example, it’s not a true redundancy if an employee is ‘made redundant’ and someone else is engaged to perform that same role (a change of job title will not suffice if the role is essentially unchanged).
To find out if your employer is applying a fair redundancy process, check their redundancy policy in your employee/staff handbook.
All businesses should have one and you should have ready access to it.
The redundancy policy should set out the steps your employer will (and in many cases, must) take to ensure they're running a lawful redundancy process.
Redundancy really should be a last resort for an employer. They'll be expected to have properly considered alternatives and to have taken reasonable steps to try to prevent you from facing compulsory redundancies.
So they should have considered other less drastic measures first. These would normally include:
- terminating self-employed contractors/freelancers before looking to reduce employee headcount
- freezing recruitment, salary raises, bonuses and reducing or removing overtime
- reducing staff working hours and/or inviting flexible hours requests from employees
- imposing short-term working, or introducing temporary lay-offs
- asking staff if they’d be willing to consider early retirement or voluntary redundancy
- redeploying employees into other vacant roles within the business they may be suitable for (not the same as the most qualified for)
If you don’t believe your redundancy is a genuine one, you should take advice straight away.
You may be able to get help with advice from a trade union representative, from a household insurance policy that contains a free legal advice entitlement (many do – look it up under the ‘legal expense insurance’ element of your policy) and/or from a service like Citizens Advice. If you get stuck, our pay-as-you-go Speak To An Adviser service is also well placed to support you.
2. To be fairly selected…
…meaning that you’re subjected to a fair and non-discriminatory redundancy selection and roll-out process.
It may be entirely reasonable and lawful for your employer to make you redundant without applying a selection process if your job no longer exists because, for example:
- you work in a subsidiary or branch or premises that's being completely closed down, or
- you’re the only employee in your part of the organisation and so there's nobody else to select or to compare you with
If you’ve worked for your employer for less than 2 years' continuous service (it doesn’t need to be under the same job title), your employer has fewer legal obligations to you. However, while this means they don’t have to show they’ve been reasonable in identifying you for redundancy, they nonetheless can’t (lawfully) discriminate against you or choose you for an unfair reason. So, this section is still relevant to you too.
If you’ve been with your employer for 2 or more years of continuous service, the reasonableness of your employer’s actions in identifying you (and any other employees) for redundancy is relevant to whether the process they’ve applied is lawful.
Are you in the ‘pool’?
Your employer will need to set and follow clear and fair criteria and an impartial scoring process for determining who's going to be affected by the need to let staff go – and, if more than one person will be affected, how they'll narrow down that group of people (often called a ‘pool’ of people) to the number of redundancies that their analysis concludes they need to make.
Being in the ‘pool’ of those identified shouldn’t automatically mean that you’re going to be made redundant. You should ask your employer how they've identified the ‘pool’ of those affected and also how many staff within any group of people identified will, in fact, be made redundant.
If you’ve been chosen for redundancy when others with the same/a similar job haven't been selected, this may also indicate that you’ve been unfairly selected and/or that the pool is not fairly constructed.
Employees who are in ‘the pool’ may all be made redundant by an employer and asked to apply for new jobs that might be available elsewhere in the business (your employer has a duty to try to find you something else in their business), or only some of you may be selected and ultimately confirmed for redundancy.
You're entitled to know the criteria that they'll apply to the selection process and how the scoring system will work. If you’re selected, you’re entitled also to know your score and how it was reached.
Everyone in the pool should have the same criteria and scoring system applied to them. Those with the lowest scores should be prioritised for redundancy.
However, for those in the pool, offers of taking voluntary redundancy may be possible/invited. Criteria still matter in these circumstances.
What are fair criteria?
By law, fair selection criteria for redundancy can include:
- the business’ need for/ability to continue with the role you currently hold
- your skills, competence and qualifications
- potentially also (but take even more care with these):
- your attendance and performance records
- whether you’ve been subject to a recent disciplinary process
Your employer may also be able to take a ‘last in, first out’ approach to the process as well; although for that to be fair, it must be applied across all the workforce; it could be unlawful if it affects one group of employees more than others, e.g. the youngest or oldest staff members are affected.
What matters with all of the above criteria is the manner in which they are applied to you. The criteria themselves could be fair but if they’re not applied fairly to you, then you've not been fairly selected for the pool of affected employees, or as someone whose redundancy has been confirmed.
We highly recommend taking legal advice on the criteria you choose before you start putting them into practice.
Which criteria aren't fair?
Criteria that should never be applied to redundancy selection (since they’re automatically unlawful) include, for example, your:
- salary, pay-grade and/or working hours (including minimum wage, remote or flexi-working) status
- part vs full-time status
- pregnant status
- maternity, paternity, parental leave or carer entitlements and status
- age, disability, health, religious, gender/gender reassignment, marital, sex/sexual orientation status
- trade union or employee representative status (including if you’ve been on strike at some point)
- holiday entitlement or other absences, e.g. jury service
- questions to your employer, asking them to clarify your rights (you're entitled to ask questions!)
- concerns or complaints about your rights, e.g. health and safety hazards, colleague behaviour towards you, or whistleblowing
- refusal to increase your hours (e.g. you work in a shop and refused to work on a Sunday – you can’t be forced to work on a Sunday unless it’s written into your employment contract)
There may well be other reasons. The above ones are the most common that our expert partner comes across.
Provided that a fair process has been applied to you and you've been consulted with, it’s not unfair of itself to make you redundant at the same time as:
- you’re off work due to sickness
- you’re pregnant, on maternity or shared parental leave
- you’re on holiday
Even if you’re off sick or on holiday or out of the office due to maternity or shared parental leave reasons, you must still have been consulted with individually and properly, and your role must have been evaluated and identified for redundancy by reference to fair and objective criteria, must not be discriminatory.
If you’re on maternity or shared parental leave when made redundant, or you’ve been working for the employer for more than 2 years by the time your job is due to end, your employer must try to find you an alternative role within their business. You should be offered (not have to apply for) a suitable job within the business, even if someone else might be more qualified.
If that’s not the case, then you may well have good reasons to challenge the process and your selection for redundancy as unfair.
Being asked to reapply for your existing job
Your employer is entitled to ask you to do this as part of the selection process and to help them decide. If you’re not successful, you will remain in your job unless and until your employer makes you redundant. They might offer you a different role rather than terminate your contract.
3. To be told what is happening and have the chance to ask questions…
…and to understand what is happening and what, if any, options there are. This is called ‘consultation’ and all employees have a right to be consulted with or the redundancy isn't fair and lawful.
Fewer than 20 jobs/employees identified for redundancy
There are no formal procedural requirements for what this consultation should look like if fewer than 20 jobs have been identified as being ‘at risk’ of redundancy.
But a robust consultation process would typically include:
- A proper notification to, and discussion with, all employees to let them know the business is having to consider redundancy as a realistic possibility, having considered all the other alternatives first
- Subsequently notifying and calling together all employees who have been identified as ‘at risk’ (i.e. the staff who are being included in ‘the pool’
- Meeting with each affected employee individually and confirming to them why they've been selected for the pool and what the next steps are
- Meeting with and confirming to the employee what was the outcome of the criteria and scoring process in their case, and whether they're being made redundant or not
- If being made redundant, what alternative roles the business can offer the individual employee
If you don’t agree with the outcome of the process, that doesn’t necessarily mean the consultation process or its outcome is unfair. Lawful redundancy consultation doesn't need you to agree with the outcome, but consultation must be fairly carried out.
‘Collective consultation’ - more than 20 jobs/employees identified for redundancy in any 90-day period at any single location
A formal process applies to collective redundancies that fit the above description.
Your employer will need to file a formal notification of the business’ redundancy position, consult with trade union representatives and take other formal steps. It’s a much more involved and time-consuming process.
4. To be accompanied in meetings
During any redundancy meeting, you have the right to bring someone with you. That person will typically be a colleague or, if relevant, a trade union representative.
Your employer should remind you of this entitlement when they send you meeting invites to discuss redundancy. You should let them know if you intend to invite someone to accompany you and who that person is, as well as their relationship to you. You'll normally be responsible for making their attendance (including any travel) arrangements and pay any travel costs they incur.
5. To be considered for another suitable job within the business…
…if relevant vacancies genuinely exist.
If you’ve been working for your employer for 2 of more years continuously, your employer must try to find you one or more alternative jobs within the business – and, by law, they must give you at least 4 weeks to try out any alternative role before you need to confirm whether you want to remain in that alternative role or not.
If they can't find you another job, however, this doesn't mean they've not acted fairly or lawfully.
How the offer should be made
For an employer to lawfully offer you an alternative offer of work, they should have set out that offer to you in writing and stated that it's unconditional on you doing anything.
In particular, you shouldn't need to apply for this alternative role – they must offer it to you.
They must also:
- have made the offer before your current contract ends
- described how the new job is different from the one that's being made redundant, and
- ensure that the new job starts less than 4 weeks after your old contract is set to expire (according to the date set out in the redundancy notice they should have served on you)
The 4-week trial period isn't affected by you being ill or on holiday for part of it, i.e. you're not legally entitled to an extension of that period, although your employer may well be prepared to agree to one.
If you agreed to a trial period longer than 4 weeks, it should be recorded in a writing communication between you. Normally, your employer will write to you to confirm this. They may ask you to countersign that letter as evidence that you agree.
If you want the alternative job
If you decide to accept the alternative job, you should ask your employer for a new contract, a new, clear job description and confirmation of how this compares to your existing terms and conditions, e.g. change of pay, working hours, location etc., so that you know exactly what you’re agreeing to. You may want to make your acceptance conditional on the 4-week trial period you’re entitled to.
If you don’t want the job
Right from the outset, or, if you agree to a trial period before those 4 weeks are up, you can decide that the alternative role isn't for you and you should tell your employer that in writing.
If you decide not to go ahead, then (provided that you refuse the job within this 4-week time frame) you’ll retain your right to any redundancy pay you would have been entitled to if no alternative role had been offered by your employer.
There may be multiple reasons why you might not want to accept the job. Common reasons that employees turn down alternative roles include the pay not being at the same level as their existing job, the transport arrangements or costs are more costly, the logistics of the job can’t be managed around family life in the same way that the existing one can.
Many contracts contain clauses entitling an employer to work from a different location. If your contract contains this clause, then if the travel time and costs to this location are reasonably similar to what you experience with your existing role, a change of location wouldn't be a sufficient reason for you to refuse the job and take redundancy instead.
Your employer can refuse to pay you redundancy pay if they believe your reason(s) for refusing the alternative job isn't reasonable.
If you find yourself in this position, our expert partner recommends:
- asking your employer for a meeting to discuss this. You might want to keep this informal to begin with. It could be a misunderstanding or they may have failed to appreciate why you don’t feel able to accept the alternative
- if this doesn’t work, you could raise a formal complaint about the process – called raising a grievance, and your employer should have a grievance policy in place setting out the steps and process you should follow. Here you should make sure that your complaint points out what’s happened, why you haven’t accepted the job and you should request that your redundancy pay is paid to you
- grievance processes should include an appeal process if your employer turns down your first attempt to resolve this. If your appeal is unsuccessful, you can apply to Acas, for what’s called early conciliation, where they'll essentially mediate between you and your employer to try to reach a resolution that’s acceptable to both you and your employer
- if this doesn’t get you the outcome you want, you still have the option of bringing an employment tribunal claim. This is a last resort and you should take legal advice before you consider doing this.
6. To be properly considered for statutory redundancy pay – where this is relevant
It isn't a right to redundancy pay in all cases. The legal entitlement to statutory redundancy pay arises where you:
- have been working as an employee, with an employment contract, for the same employer
- for at least 2 years continuously
- have been made redundant, (not where you’ve taken early retirement), and
- you are not one of the excluded categories of employee (including police officers or armed forces personnel, someone self-employed, in the civil service, who is employed by a foreign government or who is domestic staff working for your immediate family)
You must receive the payment in the normal way you receive your wages, on the date you leave work or as soon as possible afterwards, on an agreed date.
If you’re an employee on a fixed-term contract and you:
- have been working already for a duration of more than 2 years, or
- have worked a series of back-to-back/consecutive shorter-term contracts that have run for over 2 years
and your employer decides not to continue your current contract because your job no longer exists, you’re also entitled to be paid statutory redundancy pay.
Your written statement of redundancy pay entitlement
You’re entitled to receive a written statement from your employer, setting out what redundancy pay you are entitled to and how they have calculated it.
What do you get?
Statutory Redundancy Pay rates depend on several factors, including your age, how long you’ve worked for your employer and the date when you were dismissed for redundancy reasons.
You can take a look at the government’s handy redundancy calculator to work out what your employer should be paying you.
The calculation will include:
- 1.5 weeks’ pay for each full year of employment after your 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 maximum length of service to which the calculation can be applied is 20 years. Weekly pay is capped at £544. This means the maximum amount of statutory redundancy pay is £16,140 according to this link. No tax is payable on your statutory redundancy pay.
If your employer doesn’t pay you, or doesn’t pay the right amount, you have a period of 3 months from the date your employment ended to make a claim to an employment tribunal. (Claiming outside of this period may not be fatal to your ability to get the pay, as a tribunal has a discretion to award you pay after that, but only up to 6 months afterwards.)
Employers may also enhance redundancy pay (generally called ‘contractual redundancy pay’). Note that tax may be payable on this enhanced portion of your redundancy pay if it exceeds £30,000. Your employer should deduct this for you at source.
Some employers may also still give some form of redundancy pay to employees who’ve served with them for less than the 2-year eligibility period.
How not to lose your right to your redundancy pay
Your entitlement can be revoked.
The most common reasons for you losing the entitlement is if you:
- reject an alternative job offered to you by your employer when it was considered suitable for you and you’ve given no good reason for doing so, or
- you’ve found and accepted another job before the end of your notice period, or
- you’re dismissed for gross misconduct before the end of that notice period
What if your employer doesn’t pay it when they should?
If you don’t receive the pay when you should, you should write to your employer, explaining and evidencing your entitlement to the pay.
If they don't respond or they respond by refusing to pay you, you can contact the independent conciliation service, Acas, for help resolving the matter.
If Acas can’t get your employer and you to a position where you both agree a resolution, then you can consider bringing an employment tribunal claim against your employer after that. We strongly advise you to take legal advice in advance of doing this.
7. To get the right final pay
In your final pay slip, you should expect to see:
- your correct statutory redundancy pay
- any additional contractual redundancy pay you're entitled to
- your last salary payment
- any payment instead of you working out your notice (your payment ‘in lieu’)
- any bonus, commission or expenses you’re entitled to
- pay for any outstanding holiday that you’re owed and haven't taken
Remember that the first £30,000 of your redundancy pay is tax free (always make sure to check the current government figures, follow this link). Anything over that will be taxed by HMRC at your usual tax rate.
If your employer pays you on/before your final day of work, they’ll sort out all the tax payable on the amount for you.
If they pay you after you've left, they’ll pay tax on the final sum at 20% – but if you pay higher rate tax, you’ll need to account to HMRC for the additional tax personally. You can call them and they'll help you to calculate this sum if you’re not sure what it is.
8. To be given a proper notice period
Once the consultation discussions have concluded, you’re entitled to be given a proper notice period.
The length of notice will depend on how long you’ve worked for the business (not how long you’ve worked in your current role, which might be a shorter length of time).
To work out what notice period you should be entitled to, take a look at the government requirements here. If you’ve worked for your employer for between 2 and 12 years, you should get a week’s notice for every year employed. And if you’ve worked continuously for longer than 12 years for your employer, your notice is capped at 12 weeks.
Payment in lieu
If there's a clause in your employment contract that permits your employer to do so, they may offer you payment instead of you working out your notice – called a ‘payment in lieu of service’. This means you might not work some or all your notice period, would leave sooner, but would still receive payment equivalent to what your wages would have been had you continued to work to the end of your notice period.
9. To be allowed reasonable time off
If you’ve been an employee of this business for more than 2 years, and you’ve been confirmed for redundancy and given your final leave date, you’re also entitled to take reasonable paid time off to look for another job or to undertake vocational training help you get another job.
Reasonable time off means no more than 40% of your normal working week. I.e. if you normally work 5 days a week, you could take up to 2 days per week to find other work or to undertake training.
What’s reasonable is also typically evaluated by looking at how long your notice period is, whether the business can continue to run in your absence, and other factors, including how far you have to travel to work and whether your contract contains any clauses that specify how many days you'd be entitled to in these circumstances.
Your employer must pay you your normal hourly rate during this time out and they're not allowed to ask you to make the time up or to re-arrange any work commitments that conflict with your job search/training activities.
It’s best to discuss your intention to take time out with your manager and to give them as much notice of your search/training activities as possible, so they can plan for your being out of the workplace more effectively.
10. To be allowed to appeal the decision
You’re entitled to appeal your employer’s decision. Your employer’s confirmation in writing of your redundancy and their redundancy policy should provide you with the details of how to appeal and what you're entitled to.
If your employer doesn’t change their decision following your appeal and you believe their decision has been unfairly reached, you may want to consider making a claim to an employment tribunal.
Want to know more about employment law?
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