Managing redundancies and redundancy pay
Even the most successful organisations sometimes find themselves in situations where they need to restructure and downsize the level of their workforce by making redundancies.
There can be a number of different reasons for this such as needing to reduce costs to make an organisation sustainable.
Your business may no longer need a certain role, or you may outsource services to a new provider (in which case TUPE may apply). In these situations an organisation will need to dismiss groups of people at the same time and this can be achieved via a redundancy process.
When to use the redundancy procedure
Redundancy is a form of dismissal and can occur where the following conditions are satisfied:
- The employer’s business, or part of the business, has ceased to operate; and/or
- The employer’s business has moved to a different place; and/or
- The business’s need for work of a particular type to be done has ceased or diminished
Redundancy legislation is a complex area and it is vital that the correct procedure is followed in order to avoid claims of unfair dismissal at an employment tribunal.
Redundancy procedure and process
Every organisation should have a formal redundancy procedure which outlines the steps which will be taken and the criteria that will be used to make decisions.
Whilst the exact procedure will vary from organisation to organisation, the following steps should be taken in order to effectively manage the process and remain compliant with relevant legislation.
Identify the pool for selection
Organisations should carefully identify the group of employees that will be made redundant (selection pool) and ensure that they correspond with the reason(s) for redundancy. Usually a section pool will consist of atleast one of the following:
- Employees who do a similar type of work
- Employees who work in the same department
- Employees at the same office location
- Employees whose work has finished or has reduced
Organisation can choose to have more than one selection pool depending on their situation however the selection process must be done correctly to avoid claims of unfair dismissal.
Once the selection pool(s) have been decided you must enter into a meaningful and proper consultation with the employees who have been selected for potential redundancy.
This means that there should be a two-way dialogue rather than simply informing them of a decision which has already been made.
At the start of the consultation process an organisation is obliged to give the following information to the representatives:
- Reason(s) for the proposed redundancies
- Number of proposed redundancies and their job types
- Proposed method of selecting the employees to be dismissed
- Method of carrying out the dismissals and over what period they will take effect
- How redundancy payments will be calculated.
Important timescales in redundancy management
Organisations should give an advanced warning to affected employees of the impending redundancy.
There is no minimum timescale if less than 20 employees are to be made redundant.
However where there are 20-99 employees to be made redundant at one organisation in less than 90 days, consultations should be held atleast 30 days before the first dismissal. This period is extended to 45 days if there are over 100 people to be made redundant.
Selection criteria for redundancy
Once the consultations are complete, the organisation must choose employees from the selection pool for redundancy.
A list of criteria should be drawn up to reflect the organisations future needs and to retain its best employees. The criteria must be objective, fair and consistent in order to avoid direct and indirect discrimination.
Examples of criteria for redundancy are:
- Attendance records
- Disciplinary records
- Skills, experience or qualifications
- Performance records
Last in first out (LIFO)
Last in first out (LIFO) should only be used as part of a number of different criteria due to the increased risk of discrimination against a certain set of employees and the risk it carries in losing your most competent employees.
Organisations should use selection procedures based on a points system where a score is given to each employee against the relevant criteria. However, care should be taken in how the criteria are applied to avoid discrimination.
Dismissing someone because of their age, sex, sexual orientation, marital status, disability, race or religion or any other protected characteristic will be a breach of the Equality Act 2010.
Notice and appeals
Once the consultation process has been completed, notice in writing needs to be given to the affected employee of the redundancy. The notice period will be either the statutory minimum or the contractual notice depending on which is greater.
Employees are allowed to appeal the decision to be made redundant and you should carefully consider any such appeals.
Employees who are made redundant are entitled to redundancy pay if they have a minimum of 2 years continuous service. The statutory minimum pay is:
- Half a week’s pay for each full year of service aged under 22
- One week’s pay for each full year of service aged 22 or older but under 41
- One and half weeks of pay for each full year of service aged 41 or older
Length of service is capped at a maximum of 20 years and a week’s pay is currently capped at £489 for calculation purposes. The maximum statutory redundancy pay an employee may receive is currently capped at £14,670.
How our HR consultants can help
The HR consultants at PeoplePointHR have helped many organisations plan and manage redundancies across a range of different sectors. Our HR and employment law specialists will help you:
- Assess the redundancy situation and identify where you could save costs
- Create a redundancy plan to manage and implement the process
- Assist you with identifying employees to be made redundant ensuring compliance with legislation
- Manage the consultations with employees and assist with communications to all staff
- Manage any appeals from employees
- Calculate redundancy payments
Our dedicated HR consultants will ensure that you receive practical guidance and support to ensure that the redundancy procedure is implemented in a fair, consistent and compliant manner.
Contact our HR experts today on 0330 555 2555.