A guide to redundancy

For most people, facing the prospect of being made redundant is a difficult time – both emotionally and financially. Many say that they feel out of control of what’s happening to them, which can cause anxiety and uncertainty. Whilst you can’t always stop what’s happening, one of the best ways to take back control through such a difficult time is to read up on the process and your rights, and to start making plans for the future so you can see a path forward. We hope that these guides will give you the information you need to feel confident in taking those crucial first steps.

Understanding the redundancy process and your rights

How much notice should I get before being made redundant?

If your employer is making you redundant, you are legally entitled to a minimum period of notice, which can be crucial in helping you to prepare your plans for the future. The amount of notice they must give you will depend on your contract, and how long you have been working for them.

Your employment contract is usually a good starting point as it will detail the minimum notice period your employer has agreed to provide you with. This can often be one month but does vary substantially from employer to employer, and role to role.

In addition to checking your contract, there are also statutory minimum notice periods that are enshrined in law, that are dependent on the length of time you have been with your employer.

These are:

  • At least one week’s notice if you’ve worked for your employer for between one month and two years.
  • One week’s notice for each year if you have been employed between 2 and 12 years.
  • Twelve weeks’ notice if you’ve worked for your employer for more than 12 years.

Whatever it says in your contract, your employer is not allowed to give you less than the statutory minimum notice period.

What is the Redundancy Consultation process and how does it work?

Part of the redundancy process is that employers have to consult with employees before officially making them redundant. They have to tell you what’s going on, explain their rationale and give you a chance to ask questions and raise objections. Its a legal requirement for your manager, or the person leading the redundancy changes to meet you at least once and they might need to meet you more than once to ensure they respond appropriately to your suggestions or requests. As part of the consultancy process, you can discuss:
  • How people and roles are being selected for redundancy
  • Alternatives to redundancy
  • Ways to reduce the number of redundancies
  • Help and support to find a new job or retrain
One frustrating thing about the process is that your employer does not have to make any changes to their original plans, they simply need to show that they’ve heard your concerns and considered your ideas. This means that whilst it’s always a good idea to approach these conversations positively, on a personal level, some people find it helpful to simply think of the consultation process as some extra time to make your own plans. The process your employer needs to follow will depend on the number of people being made redundant. For example:
  • If fewer than 20 people are being made redundant, then your employer only needs to consult with you individually for a ‘reasonable time’ – unfortunately the idea of what is a ‘reasonable time’ is open to interpretation and can vary in practice from 24 hours to 1 month.
  • If between 20 and 99 people are being made redundant at the same time, then timeframes are more defined with a requirement for the company to consult for a minimum of 30 days before serving notice to employees.
  • If more than 100 people are being made redundant, then an employer must consult for a minimum of 45 days before serving notice to employees.

What if I am offered alternative employment with my company?

Sometimes employers will offer you an alternative job within the company, instead of making you redundant. If a ‘suitable job’ becomes available, your employer must offer it to you as an alternative to making you redundant. From an individual’s perspective, this can have a number of important consequences that you should be aware of.

On the one hand it can offer you the chance for continuing your employment. On the other hand, if the role isn’t suitable, you must inform your employer in writing with a clear explanation of why you don’t think the role is suitable. If you don’t do this, and you don’t take the alternative role offered, then in the worst case scenario your employer could refuse to pay you any redundancy pay.

  • Potential reasons why a job may not be suitable could be:
  • It would create, or make worse, a health issue
  • It has a lower salary
  • You have difficulty getting there, for example because of a longer journey, higher cost or lack of public transport
  • It is significantly different from your old role or your don’t have the skills to carry out the new role
  • It would have a significant negative impact on your work-life balance

You do not have to take the job if you don’t think it’s suitable and most employers will be very pragmatic and understanding about this.

If for some reason your employer does not accept your reasons for refusing an alternative role, then try asking them why, and discussing it informally. If you are still concerned about being forced into an unsuitable role, you could try calling the ACAS helpline who offer free and confidential advice on workplace disputes.

How much redundancy pay am I entitled to?

It’s important to know what, if any, redundancy pay you are entitled to.

To qualify for redundancy pay, there are two simple tests:

  1. You need to be classed as an employee (see ACAS guidelines for more details on employee status)
  2. You need to have continuously worked for your employer for more than 2 years.

If you qualify, then the amount you will be entitled to will depend on your employment contract, your age, and the length of time you have worked for your current employer.

Calculating your minimum statutory redundancy pay

When it comes to redundancy pay – there is a legal minimum amount that your employer must pay you which is called statutory redundancy pay. This can be calculated as follows:

  • 1.5 x your week’s pay for each complete year you worked with this employer over the age of 41.
  • 1 x your week’s pay for each complete year you worked with your employer when you were aged between 22 and 41.
  • 0.5 x your week’s pay for each full year you worked with the employer before age 22.

However, there are a number of caps on this. The most important one being that statutory redundancy pay is capped at a maximum weekly wage of £525, (or £27,300 per year). So even if you are earning more than this, your redundancy pay will only be calculated based off earnings of £525 a week.

The other cap is that statutory redundancy pay is only paid on the last 20 years of service, so even if you have been with a company for more than this – you will only receive redundancy pay based off 20 years worth of service. These two caps essentially mean that the maximum statutory redundancy pay that anyone could receive would be £15,750 (20 years x 1.5 weeks pay for each year x £525 weekly earnings) but in practice the average payout is much lower.

Example statutory redundancy pay calculations:

Example 1

Sixty-year-old Jack has worked full-time as an Administrator for “Pet Company A” for 11 years and two months, earning £300 per week. Jack has just left his job after his employer made him redundant.

So Jack will get:

  • A week and a half’s pay for every year that he worked between the ages of 49 and 60.
  • This means the total amount that Jack will receive is £4,950 (11 years service x 1.5 weeks pay for each year x £300 weekly earnings).

Example 2

Fifty-five-year-old Martha has worked full-time as a Project Manager for “Industrial Company B” for 8 years and five months, earning £600 per week. Martha has just left her job after her employer made her redundant.

So Martha will get:

  • A week and a half’s pay for every year that she worked between the ages of 47 and 55.
  • As she earns more than the £525 weekly earnings cap, her calculation will be based off a value of £525 per week.

This means the total amount that she will receive is £6,300 (8 years service x 1.5 weeks pay for each year x £525 weekly earnings cap).

If you want help with doing the sums based off your own situation, there is a helpful calculator available on the Government website.

Additional contractual redundancy pay

Your employer is legally obliged to pay you the minimum legal amount of statutory redundancy pay (as above), but they can also choose to give you extra if they want to. This enhanced payment is known as contractual redundancy pay, and the amount you’re paid will vary depending on who your employer is and what they decide.

Most employees who receive contractual redundancy pay do so because it’s part of the company’s policy, or because it’s included in their employment contract – so it’s always worth checking your employers intranet and your employment contract to see if there is anything included in there that might top up the statutory amount you are entitled to.

Do I have to pay tax on my redundancy pay?

The first £30,000 of your redundancy pay is tax free – and this still stands whether you end up with the legal statutory amount, or a more generous payout from your employer. It’s important to note however that this doesn’t apply to the whole of your last paycheck. Any pay due for working whilst on your notice period, holiday pay or pay in lieu of notice will still be subject to normal taxation. The tax free amount purely applies to the ‘redundancy pay’ element.

What do I do if I feel my redundancy is unfair?

Redundancy is when people are dismissed due to no fault of their own. Whilst it can be an emotional time, it’s important to remember that it’s not a reflection of anything you have, or haven’t done. It can happen for any number of reasons but some common examples include: the company needing to cut costs, relocate or stop doing certain activities.

However, redundancy cannot be used by an employer as a way to dismiss you unfairly. They must explain to you why you have been selected for redundancy, and crucially this cannot be because of your age or any disability, or your gender, ethnicity, sexual preference or other specific protected characteristics. Your employer must also follow a fair process and consult you on the proposed redundancies.

If for any reason you don’t think your employer has followed a fair process, or you are being put forward for redundancy due to a discriminatory factor (such as age) then you might be able to claim unfair dismissal at a tribunal.

The first step is always to speak with your employer and find out if they have an appeals process and how it works. If they do not, you should write to them clearly explaining why you think the redundancy is unfair. If they accept your appeal, you can usually simply continue on in your old role. If they don’t, then the redundancy process will continue as before with any redundancy pay still due.

At this point, if you still feel like you employer has treated you unfairly, then you can take your claim to an employment tribunal. There are no fees for doing so, but it does need to be done relatively promptly, as there are time limits for doing so depending on your case. The first step is always to inform ACAS (the Advisory, Conciliation and Arbitration Service) – an independent organisation funded by the Government – who will offer you ‘early conciliation’ which is a free service that may help resolve the dispute without the time and effort of going to a tribunal. You always need to go through ACAS in the first instance, however you can choose not to use their ‘early conciliation’ process, but many people find it a helpful first step and using it doesn’t affect your right to go to a tribunal afterwards, should you still be unhappy.

Redundancy - Frequently Asked Questions

What is ‘pay in lieu of notice’?

If your contract mentions ‘pay in lieu of notice’ then this means that you’re employer will pay you for your notice period but you won’t be required to work it. The pay will still be the same as that which you would have received if you’d worked throughout your notice period, however your official last day of employment will usually be sooner than otherwise.

A change in your last day of employment can have knock on implications, such as the date you can start claiming future Government benefits and also some employee benefits, such as private healthcare cover may stop sooner, so it’s worth understanding what these might be.

What if I’m still owed holiday?

Part of making sure that you receive everything you’re entitled to is remembering to make sure that if you have holiday owed, that your employer pays you for it, or lets you take it before you leave. So make sure you check how many days you have left to take.

What if my employer goes bust?

Sometimes, if your employer goes out of business, then you may have to claim your statutory redundancy pay and holiday pay owed to you from the State instead.

In order to do this, you can start by contacting the Insolvency Service on 0330 331 0020 (their lines are open Monday to Friday, 9am to 1pm).

Should I consider voluntary redundancy?

If your company is looking to make job cuts, then they may offer staff the option of ‘voluntary redundancy.’ This means that they may ask you whether you would like to willingly leave your job in exchange for a financial incentive. Just because your employer has offered it, it doesn’t mean you have to take it, and you should always think carefully about your decision.

Questions it’s worth asking yourself whilst your deciding, are:

“Can I afford it?”

A lump sum payout from your employer might initially seem like a great idea – but it’s important to make sure that it’s enough to live on until you work out what you want to do next. It can be helpful to think about any lump sum payment offered in terms of your old monthly salary ie how many months’ salary are you being offered? You can then make an assessment on how long it may take to find another suitable job, so you know where you stand.

“How much will I actually receive?”

Before you make your final decision you should make sure that you’re clear about exactly how much money you’re going to get from your employer – taking into account redundancy payments, notice periods, any accrued holiday and the like. Redundancy payments are usually based on your age, current salary and the length of time you’ve been doing your job. It’s also worth understanding the tax treatment of any payments, so you don’t get any nasty surprises when a net figure gets paid into your bank account.

“Will I still be insured if I take voluntary redundancy?”

It’s a good idea to find out whether you have payment protection insurance on your loan, credit card, mortgage or income. Some insurance companies won’t pay out if you decide to take voluntary redundancy so it’s important to check with your insurance provider.

If you find out that you won’t be covered, then you will need to make sure that the amount you receive from your employer is enough to continue to meet your repayments every month.

“Can I claim any benefits if I take voluntary redundancy?”

Whether you can claim benefits after taking voluntary redundancy will depend on the amount you receive and what type of benefits you’re applying for. As soon as you stop working, it’s best to contact your local Jobcentre Plus, or Benefits Office to see what you’re entitled to. Most benefits won’t kick-in straight away, so the earlier that you make a claim after losing your job, the better.

Use a benefit calculator on gov.uk to see what you might be entitled to:

Can I work reduced hours as an alternative to redundancy?

If working reduced hours could be an alternative to redundancy, then most employers will offer this in the first instance. However, this is why the consultation process exists, so there is no reason why you shouldn’t discuss alternative redundancy options with your employer during the consultation process.

If your employer does offer you reduced hours or another role, then the details surrounding this will need to be agreed mutually by yourself and your employer in writing. You will also need to be given a new employment contract to sign to accommodate the change in circumstances, so you are fully aware of where you stand and what your rights are.

There are a number of things you should consider before deciding to change roles or reduce your hours, including:

  • Will you be able to cope financially? For example, will you still be able to pay your mortgage and utility bills?
  • Will your new working hours be suitable? There may be certain times that would suit you better than others e.g. would you rather work one day less per week or 2 hours less each day?

If you do find yourself with a brand new proposition from your employer, then it’s important to take time to consider all your options – don’t rush. And if you are made redundant, make sure you receive all the redundancy pay that you are entitled to.

If I get made redundant, should I retire early and claim my pension?

Some people who are made redundant later in life, may decide to retire early. This could be because they were thinking about retiring anyway, or because they find that they have no desire to return to work. But it’s important to take the time to think carefully about how this could affect your finances and your lifestyle, before deciding whether it’s right for you.

Pros of taking early retirement

  • You think it could be better for your health e.g. more time to rest, exercise etc.
  • If you no longer have a desire to work, then it could be a welcome break and chance to focus on your other interests.

Cons of taking early retirement

  • You’re likely to receive a smaller pension and could be significantly financially worse off.
  • You can’t claim your State Pension until you’re 66 – so you’ll need to think about whether you can live off of your personal pension (and any other income or savings that you have) until that time.
  • Loss of social engagement and purpose from the workplace – whilst many of us won’t profess to loving their job, its absence can also come with unexpected negative consequences.

If your employer is thinking about making you redundant, but they think that you might be interested in early retirement, then they may offer you some incentives that are attached to your workplace pension, depending on which type you have.

For example, if you have a defined contribution pension, they may offer you a lump sum payment into your pension to increase the total value of your fund, whilst if you have a defined benefit pension, then your employer may arrange for you to receive the same pension benefits that you would normally get if you did work right up until retirement age.

Work out how much income you’ll have

If you do decide to take early retirement then your total income is likely to be a lot lower than it would have been when you were still working and receiving a monthly wage. You might receive income from several pensions, as well as from benefits, savings or a part-time job. Before you decide to take early retirement, it’s a good idea to set out a budget to see whether you’ll have enough to cover all your outgoings. In order to do this you’ll need to ask your employer and/or pension provider for full details of the pension you would get if you retired early, and/or a forecast of any other pensions that you own.

The amount that you spend every month will also change if you aren’t going into work everyday e.g. you may spend less on travel, but more on utility bills, so it’s important to take any lifestyle changes into account.

If you do decide to retire early, you’ll need to decide when to access your pension funds and how much you want to take. This can be a hugely complex area, so unless you are an expert, it can pay to get good advice from a trusted financial adviser who has extensive experience in helping people in similar situations.

We hope you found this guide useful. If you think we should include any other information, please get in touch at [email protected].

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