The benefits of voluntary redundancy (and potential downsides) for employers

Staff salaries make up a large part of any business’s operating costs. So, when business slows or priorities shift, you may need to reduce headcount to protect your organisation’s long-term stability.

If you’re considering making workforce changes, you can choose between compulsory and voluntary redundancies.  

 

Skip to: 

 

• What voluntary redundancy is and how the process works 

   

• The benefits of offering voluntary redundancy to your employees

   

• The disadvantages of offering voluntary redundancy to your employees  

   

• How to decide if voluntary redundancies are the right choice for your business 

 

What is voluntary redundancy?

 

Voluntary redundancy, sometimes called non-compulsory redundancy, is when an employer invites employees to put themselves forward for redundancy instead of selecting individuals outright. Employees can choose to express an interest in being made redundant, but the employer ultimately decides whether to accept each request.

Even though the employee applies, voluntary redundancy is still treated as a redundancy dismissal in law, which means statutory rights and consultation requirements are required.

 

How the voluntary redundancy process works

 

The voluntary route changes how employees are selected, but it doesn’t remove the employer’s legal duties. Under the Employment Rights Act 1996, voluntary redundancy requires a fair and transparent redundancy process, including consultation and statutory notice.

Typically, employers should:

 

• Identify roles at risk and invite volunteers

• Assess applications based on business needs

• Consult with those affected

• Confirm decisions in writing, and deliver information on statutory notice periods and how to receive voluntary redundancy pay

 

This keeps the process compliant and reduces the risk of unfair dismissal claims.

 

Real-life example: Liberty Global offered voluntary redundancy to 800 of its 1,900 corporate employees as part of a major restructuring programme. The company invited volunteers first to minimise compulsory redundancies and give employees more control over their next steps. Bloomberg reported that a second volunteer redundancy round would follow if there hadn’t been enough uptake initially.

 

What’s the difference between voluntary and compulsory redundancy?

The voluntary and compulsory redundancy processes both follow the same legal framework, including consultation, statutory notice, and redundancy pay. The biggest difference is how you select employees for redundancy and how the process feels for your team.

• In voluntary redundancy, the employer invites volunteers from a defined group of eligible employees. This group is usually linked to the roles at risk, so it won’t always include the entire workforce. Employees can express their interest, but the employer decides whether to accept each application based on business needs.
  

• In compulsory redundancy, the employer selects individuals for redundancy using fair, objective, and transparent criteria, such as skills, qualifications, experience, or disciplinary record. Employees don’t volunteer, but they still have the right to consultation and protections, like statutory redundancy pay and the ability to apply for alternative internal roles.

What are the benefits of voluntary redundancy?

Offering voluntary redundancy packages can offer several advantages for employers, particularly when you’re trying to protect morale or avoid lengthy selection processes. Here are some of the key benefits.

Voluntary redundancy can result in quick cost savings

Reducing headcount can sometimes be necessary to lower operating costs. If speed is essential, voluntary redundancy can help you do this sooner, especially if employees choose to leave promptly or accept pay in lieu of notice.

It’s often used when a business:

• Needs to close a loss-making site or service

• Is restructuring a department

• Needs to reduce headcount by a small number of roles

Because volunteers put themselves forward, the process can feel less confrontational than a compulsory redundancy exercise.

Voluntary redundancy avoids compulsory redundancies

One of the most challenging parts of compulsory redundancy is selecting who’ll lose their job. Voluntary redundancy allows employees to self-select; often these people were already unhappy or considering leaving. This process can:

• Spare the employer from making difficult selection decisions

• Reduce the risk of selection-related grievances or appeals

• Give employees more control over their next career step

Importantly, the employer can still decline applications if accepting them would create a skills gap or weaken the business.

Voluntary redundancy improves morale and employer reputation

Voluntary redundancy is often viewed positively because it offers employees a choice. This approach can:

• Reduce anxiety across the wider team

• Make the process feel more open and transparent

• Preserve trust between employees and leadership

• Reduce rumours or fears of “secret decision-making”

• Improve the employer brand by not forcing redundancy onto staff

By contrast, a compulsory redundancy programme can sometimes lead to lower morale or disengagement if you don’t handle it sensitively.

Voluntary redundancy may reduce conflict

Redundancy is emotionally tough, and it can sometimes create tension or misunderstandings within a team.

Some 44% of UK workers have experienced workplace conflict in the last 12 months. Voluntary redundancy won’t remove all conflict, but it often makes the experience feel more collaborative and less hostile, which can make a big difference during a challenging time for your team. In particular, it can reduce:

• Concerns about unfair selection

• Friction between colleagues

• Confusion about how decisions were made

• Frustration around a process that feels unclear or one-sided

What are the disadvantages of voluntary redundancy?

Voluntary redundancy has clear advantages, but it can also feel risky. Here are some key considerations before deciding if it’s the right approach for your organisation.

Voluntary redundancy risks losing valuable skills or high performers

It’s often your most confident, experienced, or highly skilled employees who volunteer for redundancy, especially if they’re likely to receive a larger payment or feel ready for a new challenge. If too many people with specialist knowledge or leadership experience put themselves forward, you may face:

• Critical skills gaps

• Disruption to project work

• The need for additional recruitment or training later

You can decline individual applications, but you risk damaging morale if someone was hoping to leave. And if you lack enough voluntary redundancy offers, you may feel pushed into accepting applications from the employees you’d most like to keep.

Voluntary redundancy may lead to discrimination claims

Even when employees volunteer, you still have to decide who to accept. If these decisions aren’t based on fair, objective criteria, there’s a risk of discrimination or unfair dismissal concerns.

To protect your business and maintain trust in the process:

• Apply consistent, transparent reasoning throughout

• Keep clear written records of how you made redundancy decisions

• Make sure your decisions are not based on someone’s age, gender, race, disability, marital status, or sexual orientation (known as protected characteristics)

Voluntary redundancy can negatively impact those not selected

Managing volunteer numbers can be a delicate balance. You may receive more applications than expected, or too few to meet your cost-saving goals. Either situation can create tension:

• If too many people volunteer, declining requests from some of your employees can leave them feeling awkward and unsure about their future at the company. You, in turn, may question their motives for wanting to leave and may feel they’ve been disloyal.

• If too few people volunteer, you’ll likely need to move forward with compulsory redundancy, which can increase anxiety across the wider team.
  
  

Is voluntary redundancy the right choice?

If you’ve decided the future of your business depends on making redundancies, and you’ve explored alternatives like restructuring, redeployment or reducing staff hours, the next step is choosing between voluntary and compulsory redundancies.

Choose voluntary redundancy if:

• You want to make as few compulsory redundancies as possible

• You’d like employees to have more choice and involvement in the process

• You’re confident you can manage the impact of losing volunteers, including those with valuable skills

• You want to reduce the risk of appeals or grievances linked to selection

Choose compulsory redundancy if:

• You need to retain specific skills or experience within the business

• Volunteers are unlikely to come forward from the areas where cuts are needed

• Your organisation needs more control over who leaves

• Voluntary redundancy would create gaps that are difficult or costly to fill

Any redundancy programme can feel challenging, but taking time to weigh up the pros and cons of voluntary redundancy will help you choose the approach that best supports your people and protects your organisation.

If you’d like help managing the process, our Redundancy Toolkit includes templates, checklists, and step-by-step guidance to support you from consultation through to notice and beyond. It’s a free online resource, created in partnership with employment law experts at HR consultancy, Clover HR.

For formal legal and HR advice on the redundancy process, you can also contact Clover HR for support. Or, choose from any of the other trusted consultants in the Breathe Partner Programme.