How do I make an employee redundant?
There may come a time where your business needs a smaller workforce and your employees are not at fault. This is where redundancy comes in. First let's start with the basics.
What is redundancy?
Redundancies are a form of dismissal and occur when an employee's position is no longer required. This could be because of changes with the running of the business, such as automated processes coming in, or because a reduction in the workforce is needed. If you're planning on making an employee redundant there are certain steps that you must follow and certains rights that the employee is entitled to.
This is the first step you should take before making anything final. This is where you inform the employees of what will be happening and why. You will need to give them information on why the redundancy is necessary and if there are any alternatives for the employee. The consultation can either be done on an individual basis or to the workforce as a collective.
The right to a collective consultation comes into play when you are making 20 or more employees redundant at one establishment over the course of 90 days or less. Employers should then also individually consult with the employees, as an employment tribunal may find it unfair that they were only notified as a collective.
When you are using a collective redundancy it is good practise to consult with trade union or workplace representatives, in order to agree when the commencement of the consultation will be. You will also need to agree on the duration of the procedure. Employers are required to consult with any appropriate representatives for the employees who are being affected by the proposed dismissals, whether this is directly or indirectly.
Consultation must be undertaken by the employer with a view to reaching an agreement with the appropriate representatives on ways of avoiding dismissals or reducing the number of staff that will be dismissed. This still applies even if the employees are volunteers. If you fail to comply with the consultation requirement you could face a claim for compensation.
The consultation needs to begin at least:
- If 20-99 employees are being made redundant then 30 days before the first dismissal takes effect
- If 100 or more employees are being made redundant then 45 days before the first dismissal takes place.
When discussing the dismissals with employee representatives you will need to disclose certain information in writing. Such as;
- Reasons for the proposed redundancies
- Numbers and descriptions of employees affected
- The proposed method of selecting the employees who are to be dismissed.
- The proposed method of carrying out the dismissals:
- Take into account any agreed procedure and include the period over which the dismissals are to take effect
- How redundancy payments, apart from the legal minimum, are to be calculated.
How can you avoid making redundancies?
Through organisational planning you can look at other avenues and plan ahead to decide on current and future staffing needs. If however you feel that redundancy may be the only option, such as in the case of automated systems taking the place of the employee, then you could look at:
- Retraining and redeployment in other areas of the business.
- Reduction or elimination of overtime (this could be a form of cost-cutting if the issue is monetary)
- Looking at the age of your employees and asking if they would take early retirement.
- Termination of the employment of temporary or contract employees
How do you select the employees you're dismissing?
Employers should consult with any affected employees regarding the selection criteria for dismissal. The criteria has to be objective and fair as well as consistent. Employers should look at basing selections on skills or qualifications in order to keep a balanced workforce which is appropriate to the business' future. Employers also need to develop and implement an appeals procedure. Examples of such criteria are:
- Attendance record: any employee who is regularly late for work or taking short-notice and unexplained absences should be considered for selection
- Disciplinary record: if you have had to give formal warning to any of the employees this could be a reason for dismissing them (if the warning was for a severe enough reason)
- Skills or experience: having highly skilled employees is good for the business, but having lower skilled employees could mean you can adapt them to the role. This is a fine line to tread when looking at dismissals.
- Standard of work performance: employees who give a high standard of work are more valuable to the business.
- Aptitude for work: some employees may not have the qualifications on paper, but them may have a natural ability to do the job. These could be good for the business' future.
You should look at the formal qualifications but not use these in isolation.
Once you have selected the employees that are to be made redundant you will need to give them a notice period before the employment ends. The statutory periods of notice are:
- At least one week of notice if the employee has been with the business for between one month and 2 years
- One week of notice for each year the employee has been with the business, between 2 and 12 years
- 12 weeks of notice if they have been with the business 12 years of more.
Employees are entitled to statutory redundancy payments if they have been employed by the business for at least 2 continuous years. You can also have a separate policy in place outlining any additional payments. The statutory payments are:
- 0.5 weeks' pay for each full year of service while they were aged under 22
- 1 week of pay for each full year of service while they were aged 22-41
- 1.5 weeks of pay for each full year of service while 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, capped at £479.
If you want help finding out how much your employees are entitled to use the online calculator from HMRC.
Redundancy is something that no one wants to go through, employer or employee, but hopefully this post has shed a bit of light on what will be expected from you if it's something that your business has to do. It might be worth you looking at these two resources from ACAS on How to handle large scale redundancies and How to handle small scale redundancies for more information.
All references to current legislation are correct at the time of writing, and should only be used as a guide. We recommend seeking professional advice before acting on the information in this article.