Compulsory Redundancy

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To ensure the survival of a company, owners may find themselves forced to make cuts, including reducing employees on their payroll. The organization may also have undergone a restructure, or invested in new technology, making specific roles obsolete.

Whatever the business driver behind redundancy, employers must in all cases follow a fair and transparent procedure when letting staff go.

But what exactly is compulsory redundancy and how can small business owners ensure they deal with the matter sensitively and legally?

Read on to find out. 

What is a redundancy?

This could be due to a reduction in workload, a change in working practices, or even the business closing down.

What are the different types of redundancy?

Redundancy can either be compulsory or non-compulsory (voluntary).

a. Compulsory redundancy

Compulsory redundancy is where the employer decides who to make redundant based on the reason for the redundancy. This might be due to the employee’s job no longer existing or the business going bust.

b. Non-compulsory redundancy

A non-compulsory redundancy is where individuals are invited to volunteer for redundancy, although there must still be a fair and transparent selection process in place for selecting employees. 

What are the alternatives to compulsory redundancy?

Offering voluntary redundancy, or even early retirement, are just a few ways of avoiding a compulsory redundancy situation. Here are a few other alternatives to redundancy:

1. Exploring options for staff to work flexibly, for example, working part-time, compressed hours, or doing job shares.
2. Reducing or suspending overtime.
3. Restricting new recruitment.
4. Laying off self-employed contractors or freelancers.
5. Temporary lay-offs.
6. Moving employees to vacancies elsewhere in the business.

What is a fair selection criteria for compulsory redundancies?

Having considered all alternatives, if a business owner reaches the conclusion that compulsory redundancies are unavoidable, they will need to decide the criteria by which employees will be selected.

When identifying a pool of employees for selection, its important that managers approach the process fairly, without discriminating against certain individuals or groups. Here are a few criteria that the selection process could use:

1. An employee’s skills, qualifications or aptitude.
2. An employee’s standard of work or performance.
3. An employee’s attendance record, although you should not include absence relating to maternity or disability.
4. An employee’s disciplinary record

It is also possible to select someone based on their length of service but only where you can justify this approach. This approach could indirectly discriminate against an individual based on their age, which is a protected characteristic under the Equality Act 2010.

You should also bear in mind that all nine protected characteristics under the 2010 Equality Act would be classed as an automatically unfair reason to select someone for compulsory redundancy. These are:

• Age
• Disability
• Gender reassignment
• Marriage and civil partnership
• Pregnancy and maternity
• Race
• Religion and belief
• Sex
• Sexual orientation

Other selection criteria that could be classed as unfair include any reason relating to:

1. Parental, paternity or adoption leave, or an employee taking time off to care for a dependant.
2. An employee acting as a colleague’s representative in a disciplinary hearing.
3. An employee being (or not being) a member of a trade union.
4. Being a part-time or fixed-term employee.
5. A reason relating to pay or working hours, such as an employee requesting the national minimum wage, refusing to opt out of the maximum weekly working hours or taking annual leave.

What is the process for compulsory redundancy?

Having identified the selection criteria for compulsory redundancy, an employee should consult with any affected employees about the proposals. They will also need to figure out if they need to do a collective consultation or individual consultation.

• Collective consultation: If a business is making 20 or more employees redundant within any 90-day period they must follow the collective consultation rules.
• If there are fewer than 20 planned redundancies there are no set rules to follow, although it is still good practice to fully consult with employees and their representatives to show that the business has embarked on a fair and transparent process.

The collective redundancy process involves discussing redundancy proposals with both elected representatives and individual employees, and provide written details of:

1. The reasons for redundancy.
2. The numbers of employees involved and which jobs are at risk.
3. How the company plans to select employees for redundancy.
4. How the company plans to carry out the redundancies, including timeframes.
5. How the company will calculate redundancy payments.

An employer must give employees (and their representatives) sufficient time to consider the proposals, and respond to any requests for further information. 

How long should the consultation period last?

You can only make an employee redundant once the consultation process is complete. You should inform an employee of your decision to make them redundant both face-to-face and in writing. 

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What about compulsory redundancy pay?

If you make an employee redundant, they may be entitled to redundancy pay in accordance with the basic minimum rate set by the government. This is known as a “statutory redundancy pay”. To be eligible for a statutory redundancy payment, an individual must:

1. Be classed as an employee.
2. Have at least 2 years’ continuous service.
3. Have been dismissed where there was a genuine need to make redundancies.

The statutory redundancy pay rates are based on an employee’s age and length of employment. A qualifying employee will be entitled to at least the following:

1. If the employee is aged 18-22 – half a week’s pay for each full year of employment.
2. If the employee is aged 22-40: one week’s pay for each full year of employment.
3. If the employee is aged 41 or older: 1.5 weeks’ pay for each full year of employment.

The length of service is capped at 20 years, with weekly pay capped at £571. As such, the maximum amount of statutory redundancy pay is £17,130 (October 2022). This is the minimum an employer can pay but they can opt to pay more if they wish or the employee’s contract of employment states so.

In conclusion

Making staff redundant is never an easy thing. But with a little knowledge of the law and processes required, it can be less stressful for all concerned. 

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