What is redundancy? A simple guide for employers and employees

No business owner wants to make redundancies, and every employee dreads being on the receiving end of a redundancy decision. But redundancy remains a reality for many organisations, particularly during periods of economic uncertainty.

In recent years, the UK has experienced fluctuations in redundancy rates, shifts in labour demand and rapid changes in workplace technology, all of which have put pressure on employers to rethink how they structure their teams.

 While most organisations see redundancy as a last resort, it can also be a necessary step to protect the long-term health of the business as work continues. 

 

Skip to: 

 

• What redundancies are

• When redundancy is the right step

• Some alternatives to redundancy

• How to choose employees for redundancy

• What an employee’s rights are when being made redundant

• How to feel supported throughout the redundancy process 

 

What are redundancies?  

 

Redundancies happen when an employer ends someone’s job because the role is no longer needed, not because the employee did anything wrong.

The UK government’s Employment Rights Act 1996 provides a statutory definition of redundancy as a dismissal because the employer is ceasing all or parts of the business or no longer needs employees to do particular work.  

 

When is redundancy the right step?

 

UK employers can legally make employees redundant when they can show that the role no longer exists or that there’s less need for that kind of work. Examples of redundancy in human resource management include:

 

• Business closure: The company is shutting down completely, or a branch, office, or site is closing

• Relocation: The business is moving to a different place, and the employee can’t reasonably relocate

• Organisational changes: Restructures that remove or merge roles

• Reduced demand for work: The company needs fewer people doing a certain type of work; for example, due to automation or the loss of a major contract

• Changes in the type or volume of work: The organisation has shifted its strategy, and some roles no longer fit its operational needs.  

 

When redundancy isn’t appropriate

Redundancy isn’t the same as sacking someone or making a summary dismissal. You can’t make an employee redundant if:

• The employee is a “bad fit” for the team or culture

• The employee has been underperforming (this would be a dismissal for capability instead)

• The employer intends to replace the employee with someone else

• The employer wants to remove an individual for disciplinary reasons

• The role still exists, but the employer prefers another person to do it (this could be grounds for unfair dismissal).

• The employee’s age, gender, disability, or pregnancy is the reason for the decision.
  

What are some alternatives to redundancy?

Many businesses are keen to use alternatives that avoid making their employees redundant. These options can include:

• Offering voluntary options, like early retirement and voluntary redundancy

• Adjusting working patterns, including reducing employees’ hours, introducing job shares, and offering sabbaticals or unpaid leave

• Making cost savings, such as freezing overtime, stopping bonuses, pausing recruitment, or cutting pay

• Changing workforce structures by ending all freelance and contractor agreements

• Improving internal mobility by retraining and redeploying employees into other internal roles

Example: A retail company might redeploy employed shop-floor staff to fulfilment roles as its online sales have increased significantly over two years.

While it’s good to consider alternatives like these, it’s worth noting that they can still negatively impact workplace morale in a similar way to a redundancy programme.

How do you choose employees for redundancy?

Selecting employees for redundancy may be one of the hardest tasks you’ll face as an employer. That’s why it’s so important to approach the redundancy process in a way that’s fair, structured, and legally compliant; otherwise, you risk unfair dismissal claims and the reputational damage that can follow.

It’s equally important to think carefully about the employees you retain. Their skills and experience will be essential in helping your business rebuild and move forward with fewer employees.

There are three broad steps to follow when selecting an employee for redundancy.

1. Identify where you need to make cuts and the number of redundancies required

2. Determine your redundancy selection pool

3. Set clear and objective criteria to decide which roles, and so, which employees you’ll make redundant

Learn more about selecting employees for redundancy.

What are an employee’s rights when being made redundant?

Employees have the right to a fair consultation process before any final decisions are made. During this process, employees can ask questions, share feedback, and understand why their role is at risk.

• Individual consultation applies when you're making fewer than 20 redundancies. It usually involves one or more meetings to discuss the situation openly.
  

• Collective consultation is required when 20 or more employees may be made redundant within 90 days. In these cases, employers must meet with suitable employee representatives, such as recognised trade union representatives or elected employee representatives chosen by the workers who are at risk of redundancy. They act on behalf of the employees during the consultation process by raising questions or suggesting ways to reduce the number or impact of the redundancies.

Following the consultation period, employees selected for redundancy are eligible for certain rights. These include:

• A statutory notice period, typically one week’s notice for each full year of continuous service (capped at 12 weeks).

• Time off to look for a new job or go to training

• Statutory redundancy payment (tax free up to £30,000.) The redundancy package is half a week’s pay for each full year under the age of 22, a full week’s pay for employees aged 22-40, and one and a half week’s pay for those 41+, based on a capped weekly amount which changes every April. You can use our redundancy calculator to calculate accurate redundancy pay numbers.

• The option to apply for suitable alternative employment in the company (if it exists)

• A four-week trial period in a suitable alternative role:

  • If both sides agree the role isn’t suitable after the trial, the employee can still claim redundancy pay. 

  • If the employer believes the role is suitable and the employee refuses it without a good reason, they may not be entitled to redundancy money. 

•   The right to appeal if they feel the process was unfair.   

Note: Redundancy rights only apply to employees who’ve been with the business for at least two years. Workers who aren’t classed as employees, for example, some casual, seasonal, or agency workers, may not be eligible for statutory redundancy pay or notice.

Feel supported throughout the redundancy process

Redundancies are never an easy subject for businesses of their people. But it’s only right to demonstrate commitment to both departing and remaining employees with transparency and care at every stage of the redundancy process.

You don’t have to navigate the process alone. At Breathe, we’ve worked with employment law experts at HR consultancy, Clover HR, to create a free online Redundancy Toolkit, including step-by-step guides, communication plans, letter templates, meeting agendas and compliance checklists - all available for you to download and start using straight away.

And if you need formal HR or legal advice to support you through a redundancy process (or any other HR challenges), you can reach out to Clover HR or any of the other qualified HR consultants from the Breathe Partner Programme.