Redundancy FAQs

What is redundancy?

Redundancy is a form of dismissal from employment that happens when an employer needs to reduce their workforce or cut costs. This can be due to various reasons, including:

• The business ceasing operation or intending to cease operation.
• The requirements of a specific job no longer existing.
• The location where a specific job was performed no longer existing.
• Introduction of new technologies or systems that make certain positions obsolete.

What are the different types of redundancy?

There are two main categories of redundancy:

• Individual redundancy: This applies when less than 20 employees are dismissed from one establishment.
• Collective redundancy: This occurs when 20 or more employees are dismissed from one establishment within a 90-day period. This is often referred to as "mass redundancy" and typically happens during business closures, relocations, or company restructures.

What are my rights as an employee if I am being made redundant?

According to the Employment Rights Act 1996, employees have certain entitlements if they are being made redundant, including:

• Redundancy pay: This can be statutory (if you have over two years of service) or contractual (dependent on the terms of your employment contract).
• Notice period: You are entitled to a notice period, which can be statutory or contractual (whichever is longer).
• Reasonable paid time off: You are entitled to reasonable paid time off to search for new employment.
• Consultation: Your employer is legally obliged to consult with you about the redundancy.
• Suitable alternative work: You have the right to be considered for any suitable alternative work within the company.

What is the redundancy process?

Employers must follow a fair and legal process when making employees redundant. This typically involves the following steps:

1. Identifying the reason for redundancy: Clearly defining the business reason for the redundancies.
2. Identifying roles at risk: Determining which specific roles are at risk of redundancy.
3. Informing affected employees: Notifying all employees who may be affected by the redundancies, explaining the reasons and the business case.
4. Defining selection criteria: Establishing objective and non-discriminatory criteria to select employees for redundancy if there is a pool of employees in similar roles.
5. Notifying the Redundancy Payments Service (RPS): Informing the RPS if 20 or more employees are being made redundant within a 90-day period.
6. Conducting consultations: Holding individual or collective consultations with affected employees to discuss the situation, gather feedback, and explore alternatives.
7. Scoring employees: Applying the selection criteria to score employees in the redundancy pool fairly.
8. Considering alternative work: Exploring and offering any suitable alternative work within the company to potentially avoid redundancy.
9. Informing employees of the decision: Communicating the redundancy decision in writing to the affected employees.
10. Right to appeal: Reminding employees of their right to appeal the decision.

How is redundancy pay calculated?

Statutory redundancy pay is calculated based on your:

• Age
• Length of continuous service
• Average weekly pay

There is a cap on weekly pay used in the calculation (£700 per week as of April 2024) and a maximum limit on the total statutory redundancy pay (£21,000).

What are the different types of redundancy pay?

There are two types of redundancy pay:

• Statutory redundancy pay: This is the legal minimum payment that employers must make to eligible employees who have been continuously employed for two years or more.
• Contractual redundancy pay: This is any additional redundancy pay that an employer may offer, as stipulated in the employee's contract of employment. It cannot be less than the statutory redundancy pay.

What is a notice period in redundancy?

Your notice period is the length of time between being informed of your redundancy and your last day of employment. Your employment contract may specify a contractual notice period, which must be honoured. If not, or if it’s shorter than the statutory minimum, the statutory notice period, which varies based on your length of service, will apply.

Is redundancy pay taxable?

Redundancy payments up to £30,000 are tax-free. Any amount exceeding this threshold may be subject to income tax.

How can RGF help?

Our lawyers can advise your business if you are facing the tough choice of making one or more employees redundant. RGF can make sure that you handle the process correctly and will be able to support your business should any dispute arise during or after the process.