What are the rules on redundancy pay?
Employees may be entitled to redundancy payments if you have continuously employed for them for at least two consecutive years.
If your business does not have a contractually enhanced pay arrangement, employees with at least two years of continuous employment are entitled to statutory redundancy pay of:
- 5 weeks’ pay for each full year of service, whilst they were aged under 22
- 1 week of pay for each full year of service, whilst they were aged 22 or older, but under 41
- 5 weeks of pay for each full year of service, whilst they were aged 41 or older
Employees can only count a maximum of 20 years of service, and the ‘weekly pay’ is subject to an upper limit. The maximum statutory redundancy payment available to employees is capped at £508 per week.
A 7-step redundancy plan for small businesses
Ideally, redundancies should always be avoided, but if you have exhausted all other options and avenues, then it is always better to carefully plan your approach and subsequent actions in advance.
- Brief managers
Before speaking openly and honestly with the wider workforce, you should first ensure that your managers are prepared, trained, informed and completely ready to support you.
If you are the only owner and/or manager, then you will need to manage the redundancy process on your own, unless you opt to bring in an external consultant. You must ensure that you are confident about handling the process correctly, and are prepared for conducting one-to-ones with staff at risk of losing their jobs.
If you have several owners and managers, ensure that they all share your vision as to the way you want to handle redundancies within the business. Work together to ensure that you can:
- Develop ideas that could help to smooth the process, and even reduce redundancies
- Effectively talk and liaise with staff
- Make redundancy dismissals and give notice of when staff selected for redundancy will leave
- Help you to restructure the business going forward
- Talk to staff
As discussed previously, if you are making fewer than 20 staff redundant, it is a legal requirement that you consult meaningfully with all of your businesses employees. This is specific way to structure a discussion, so you must ensure that you work out how, when and what to talk about. It may also prove useful, as your employees could provide you with options that you may not have previously considered.
The benefits of conducting meaningful individual consultations can include:
- A better chance of finding alternative jobs for staff
- Increased employee morale during a difficult time
- The emergence of ideas and opinions that may not have already been considered
- An opportunity for staff to make you aware of other relevant issues
- Choose redundancy candidates
If redundancy does turn out to be the only way forward, you will need to ensure that you can plan fairly and consistently for deciding which job roles need to be made redundant. You will also need to plan how to select people for redundancy in these posts.
If you are making an entire, specific group of employees redundant, then you have already identified a specific talent pool. However, if you are looking to reduce staff numbers across multiple departments or roles, then you will need to set up selection criteria to identify redundancy candidates.
Keep in mind that you must consider protected characteristics – these include anyone who qualifies as disabled, pregnant or on maternity/paternity leave. You also cannot make people redundant based on absences or attendance issues due to these reasons.
- Notice and pay
This area should form a central part of your discussions, and, if handled well, can provide reassurance for your staff and future business planning.
You must make sure that sufficient notice is provided to employees who are to be made redundant, and ensure that they are also paid correctly. The best idea is to do this in a formal dismissal meeting, and confirm the details in writing, including instructions on how to appeal the decision.
Keep records of the dates that notice was given to employees, and the dates that their employment ends. Also ensure that you check employment contracts for any formal dismissal procedures that may apply.
- Notice rights
Ensure that you stay mindful of the special rights that your selected employees have to look for alternative jobs and training. This will help you to plan ahead. In the meantime, if other positions become available within the business, consider upskilling and re-training existing employees to help with avoiding redundancies.
Anyone who has worked for you for more than two years has a legal right to reasonable time off during working hours to look for alternative work. Only some of this time must be paid.
This can often provide staff with the chance to appeal against redundancy decisions, and can also allow you to review all decisions made up to this point – are you sure that you have selected the right roles and people?
Ensuring that you build an appeal system into your redundancy process can help you with:
- Gaining early warnings that an employee is unhappy with the process and redundancy
- Dealing with a complaint and resolving matters at an early stage, reducing the likelihood of a tribunal claim.
- Gathering evidence that can demonstrate to a tribunal that you have followed fair procedure
- Focus on the future
Try to keep in mind that redundancy is normally an unfortunate but necessary process that help you with getting your business back on track. It is essential that you plan properly for how the business will operate when redundant staff leave, and communicate your future vision to all staff who are staying on board.
Making sure that you make best use of all remaining staff is crucial to your future success. Be sensitive to the fact that they have emerged from a difficult period themselves, and will have lost colleagues and friends due to the process. If you communicate and seek their views and suggestions on future business progress, you are far more likely to rebuild enthusiasm and morale more quickly.
In the case of significant changes to remaining job roles, and increasing or decreasing responsibilities, be careful not to overload staff whilst they try to adjust to their new roles. Any major adjustments are likely to require variation to existing employment contracts, and this will require the following of a specific process. For more information, see the Acas Advice Leaflet.