Compulsory redundancy guide

Making redundancies is always a difficult process for businesses. But depending on circumstances, it might be the only option you have.

But in this guide, we’ll explore your options. As well as explaining what happens if, despite all the alternatives, you must go ahead with dismissals. As there are important employment laws to remember.

What is compulsory redundancy?

It’s where a business can end an employment contract because of things such as a change in business circumstances.

You can also call the process mandatory redundancy, but the more common term is “compulsory”. And there are two forms:

• A reduction in staffing numbers
• The complete shutting-down of an organisation or function

So, if you’re closing down a department, for example, then you don’t need to agree on selection criteria to identify those who’ll face redundancy.

That’s because everyone will face it.

But if you’re in a position where you have to reduce numbers, and select who to make redundant, you have to clarify the criteria you’ll use for staff selection.

Keep in mind your reasons have to remain fair. But common examples can include:

• Disciplinary records
• Performance records
• Using a last-in-first-out approach
• Skill set
• Aptitude
• Qualifications.

Whichever approach you decide, you must make sure the criteria doesn't directly discriminate (or indirectly) against protected characteristics—such as any employees with a disability.

There are compulsory redundancy rights your employees have. Primarily, your process must remain fair at all times.

It’s unfair the moment you use a protected characteristic as a way to select employees. That could lead to a damaging employment tribunal for your business.

That’s why it’s essential you justify why you’re identifying employees for selection. With that approach, you’re basing decisions off evidence and facts.

The compulsory redundancy process

It’s a complex undertaking that requires quite a lot for your business to do. But if you break down the tasks into understandable steps it makes things easier.

Simplifying the approach, you can look at five stages you’ll have to cover:

1. You need a strong business case—so, make sure you’re planning dismissals for the right reasons.
2. You must consider alternatives.
3. If you’re ready to go ahead, then you need to select employees.
4. Hold at least two consultations with employees, consultations are only compulsory if you’re involving more than 19 members—although it’s a good idea to have them anyway, even if it’s just one staff member.
5. Make your dismissals.

That’s it, in basic form. But it’s often complicated through the number of employees you plan to make redundant, if they raise a grievance, and various other possibilities.

So, it helps a great deal if you understand the current regulations on all of this.

Some important compulsory redundancy laws

As you might expect, there are UK laws you need to remain compliant with. The most important compulsory redundancy terms are as follows:

• You need a process—it’s a legal requirement.
• You must consider all alternatives.
• You have to select employees in a fair way.

But there’s a bit more to it than that. If you’re making 20 or more employees redundant, there are other legal requirements. You have to let the government know of your plans.

Because at that point you’ll have to go ahead with a collective consultation.

To do this, you’ll need to notify the Redundancy Payments Service about what’s happening in your business. So, you should:

• Fill in the HR1 form before starting any consultations.
• After that, start the consulting process.
• Let employees have a representative, which could be a:
• Trade union representative.
• Someone your employee’s elect.

But it’s a formal process and you should hold at least two meetings. And you’ll have to update staff about your decisions as things progress.

The compulsory redundancy consultation period must start at least:

• 30 days before issuing notice of dismissal for redundancies of between 20 and 99.
• 45 days before issuing notice of dismissal for redundancies of over 100 staff.

You need to keep notice periods in mind here, too, to apply the correct amount of time. These should be:

• At least one week’s notice for employees with between one month and two years of service with you.
• One week’s notice for each year employed (up to 12).
• 12 weeks’ notice if the employee has 12 or more years of service.

Some points on voluntary redundancy

Okay, there’s a difference between voluntary redundancy and compulsory redundancy. So, let’s take a look at each one:

• Voluntary: This is where you let employees know redundancies will go ahead, but they can put themselves forward for consideration. This may appeal to any employees nearing retirement age.
• Compulsory: The employees don’t get any say in whether you can select them.

In other words, it’s an alternative to compulsory redundancy—if you’d like your employees to have more say in the process.

But you may also want to consider some other options we highlight in the coronavirus section above.

Such as making a claim for furlough to take the financial pressure of your business.

Details about compulsory redundancy pay

There are two parts to this you need to know for compulsory redundancy payments. These are as follows:

• Statutory Redundancy Pay: Payable to employees who have more than two years’ service. This is currently at a maximum salary value of £643 a week. For notice periods, you can ask staff to work during this period. Or agree they’ll receive payment in the method below.
• Pay in Lieu of Notice (PILON): The value of this is down to contractual notice period—or a week of notice for every year of service (up to 12 weeks). And it’s about whichever is greater.

Also, just to end this piece, you should think about the difference between voluntary vs compulsory redundancy payout.

Well, voluntary redundancies usually offer a better outcome for employees—in terms of the financial package.

And that’s because, as a business, you may want to provide a real incentive for employees to volunteer themselves.

If you’re offering a competitive package, and better than the standard compulsory payout, then you’ll likely seem more interest in your offer.