How Redundancy Works In the UK For Employers

Redundancy is one of those business decisions that’s never easy - especially when you’ve built a team from the ground up.

But sometimes, market conditions change, projects end, funding tightens, or your business needs to restructure to survive. When that happens, it’s crucial to understand how redundancy works in the UK from an employer’s perspective, so you can manage the process fairly, reduce legal risk, and protect your reputation.

This guide breaks redundancy down into practical steps for small businesses and SMEs, with plain-English explanations of what you need to do (and what to avoid) under UK employment law.

This article is general information only and isn’t legal advice. If you’re planning redundancies, get advice on your specific situation.

What Counts As A Genuine Redundancy In The UK?

Before you start consultation or selection, the first question to ask is whether you actually have a genuine redundancy situation.

In broad terms, redundancy usually arises where your business:

• Closes (or closes a particular workplace);
• Relocates (and the employee can’t reasonably move with the role); or
• Has reduced need for employees to do work of a particular kind (e.g. less demand, automation, loss of a contract, restructure).

Redundancy is not meant to be a “catch-all” way to exit an underperforming employee. If performance is the real issue, you’ll usually be safer using a performance management process, such as Performance Improvement Plans, rather than calling it redundancy.

Why “Genuine Reason” Matters

If an employee challenges the dismissal (for example, through an unfair dismissal claim), a tribunal will look at:

• whether redundancy was a real reason for dismissal; and
• whether you handled the process fairly and reasonably.

Even where redundancy is genuine, the process is where many employers get caught out.

Redundancy Vs TUPE: Don’t Mix Them Up

If your redundancy situation is connected to a business sale, outsourcing, insourcing, or a service provider change, TUPE might apply. TUPE can restrict redundancy dismissals connected to the transfer.

If this is your situation, it’s worth reading up on TUPE and what happens to employees early, because the strategy and legal risk profile can be very different.

How Does Redundancy Work Step-By-Step For Employers?

When business owners ask “how does redundancy work in the UK?”, what they often really mean is: what are the steps I need to follow so I don’t get this wrong?

While every business is different, a typical redundancy process looks like this:

1) Plan The Restructure (Before You Speak To Staff)

Start by documenting the business rationale. This doesn’t need to be a novel - but you should be clear on:

• what’s changing (roles, teams, locations, reporting lines);
• why it’s changing (financial pressures, new operating model, contract loss);
• which roles are affected (and why those roles, not specific people); and
• what alternatives you’ve considered (redeployment, reduced hours, recruitment freeze).

This “paper trail” becomes important if the decision is later questioned.

2) Identify The “Selection Pool”

The selection pool is the group of employees from which redundancies may be selected.

For example, if you’re reducing a customer support team from 5 roles to 3 roles, the pool may be all 5 customer support staff (not just the two you’d prefer to exit).

This is a common stumbling point for SMEs, especially where roles overlap. If you set the pool too narrowly without good reason, you can increase the risk of an unfair dismissal challenge.

3) Start Consultation (And Mark Roles “At Risk”)

Consultation should be meaningful - not a tick-box exercise. That means you should consult while there is still a chance to influence outcomes.

In practice, this often involves:

• a first meeting confirming roles are “at risk” and explaining the rationale;
• sharing the proposed selection criteria (if relevant);
• inviting feedback and alternative proposals; and
• meeting again to discuss scoring, suitable alternative roles, and next steps.

There isn’t one fixed timetable for individual redundancies, but your consultation should be reasonable in the circumstances.

If you’re dealing with larger numbers, you must also consider formal redundancy consultation periods (more on this below).

4) Apply Fair Selection Criteria (If You’re Choosing Between Employees)

If you’re reducing headcount within a pool, you generally need objective selection criteria. Common examples include:

• skills and qualifications;
• disciplinary record (careful here);
• performance record (based on documented evidence, not gut feel);
• attendance record (but be extremely careful where absence relates to disability, pregnancy, family leave, etc.).

Many SMEs use a scoring matrix to keep the process consistent and evidence-based. If you haven’t used one before, a redundancy scoring matrix can help you structure selection fairly and reduce allegations of bias.

5) Look For Suitable Alternative Employment

A key part of a fair redundancy is exploring whether there’s suitable alternative work within your business (or associated companies, where relevant).

This could include:

• a different role at the same level;
• a role at a lower level (if the employee agrees);
• a role with different hours or location (again, subject to reasonableness and agreement).

If you skip this step, you can increase legal risk - especially if there were open roles that the employee could reasonably have done.

Also note: employees on maternity leave (and, in many cases, other statutory family leave such as adoption/shared parental leave) may have enhanced protection. Where a suitable alternative vacancy exists, they may have priority entitlement to be offered it (rather than having to compete for it).

6) Confirm Redundancy In Writing And Follow Notice Requirements

If redundancy is confirmed, you should issue a written outcome letter. This typically covers:

• confirmation of dismissal by reason of redundancy;
• notice period (or payment in lieu if used);
• redundancy pay (if applicable) and how it’s calculated;
• any outstanding holiday pay;
• the right of appeal.

Notice can be a trap for employers, because it involves both statutory rules and contractual terms. It’s worth checking your Employment Contract and understanding the statutory minimum redundancy notice periods that apply.

If you plan to make a payment in lieu of notice (PILON), check what your contract says. It’s often safer where there’s an express PILON clause; you can still agree to pay in lieu without one, but it may carry breach-of-contract risk and can affect issues like benefits, restrictive covenants, and tax treatment.

Do You Need Collective Consultation For Redundancy?

If you’re making redundancies on a larger scale, you may have collective consultation obligations.

In general terms, collective consultation can apply if you propose to dismiss 20 or more employees at one establishment within a period of 90 days or less.

Where collective consultation applies, employers typically need to:

• consult with appropriate representatives (e.g. a recognised trade union, or elected employee reps);
• provide specific written information about the proposals; and
• follow minimum consultation periods before dismissals take effect.

Those minimum periods are mandatory: at least 30 days before the first dismissal takes effect where you propose 20–99 redundancies, and at least 45 days where you propose 100 or more (subject to limited exceptions). Employers also have to notify the Secretary of State using form HR1.

If you’re an SME, it’s easy to assume these rules are only for big corporates - but the threshold is about numbers, not brand size. If you’re restructuring and the numbers might hit 20+, it’s worth getting advice early.

Even if you’re below the threshold, you still need a fair individual consultation process.

What Are Your Key Legal Risks When Making Redundancies?

Handled well, redundancy can be a lawful way to restructure. Handled poorly, it can lead to expensive and time-consuming disputes.

Here are the risks we commonly see for small businesses.

Unfair Dismissal Claims

Employees with the qualifying service (in most cases, two years) may be able to bring an unfair dismissal claim.

In redundancy cases, unfair dismissal arguments often focus on process issues, such as:

• no meaningful consultation;
• an unreasonable selection pool;
• unfair or inconsistent scoring;
• failure to consider alternative roles.

If you want a practical sense of where employers usually come undone, the patterns in employment tribunals are surprisingly consistent: process, documentation, and fairness are key.

Discrimination Risks

Even if redundancy is genuine, you must ensure the process doesn’t discriminate under the Equality Act 2010.

Risk areas include:

• scoring that indirectly disadvantages a protected group (e.g. using absence without accounting for disability-related leave);
• selecting someone because they are pregnant, on maternity leave, or recently requested flexible working;
• making assumptions about future availability, health, or childcare responsibilities.

This is one reason “objective criteria” and good documentation matter so much.

Protective Awards (Collective Consultation Failures)

If collective consultation applies and you don’t comply, affected employees may be entitled to a “protective award” (which can be significant).

If there’s any chance your restructure is close to the threshold, get advice before you start issuing formal letters.

Reputational And Operational Risk

Redundancy isn’t just a legal process - it’s also a people process.

Where redundancy is handled abruptly or without clear communication, it can lead to:

• loss of trust from remaining staff;
• reduced productivity during consultation;
• negative reviews and employer brand damage;
• customers or clients losing confidence if service levels drop.

A clear, respectful process (even when the message is hard) usually reduces both legal and commercial fallout.

What Payments Do You Need To Make In A Redundancy?

When budgeting for redundancy, many SMEs focus on statutory redundancy pay - but that’s only one part of the cost.

Depending on the situation, payments may include:

Statutory Redundancy Pay

If an employee has at least two years’ continuous service, they may be entitled to statutory redundancy pay (subject to eligibility rules).

The calculation depends on age, length of service, and weekly pay (subject to a statutory cap that can change over time). Because the figures can be technical, many employers calculate this carefully and double-check it.

Notice Pay

You must provide notice or make a payment in lieu of notice (PILON).

Notice entitlement depends on:

• the statutory minimum notice; and
• any enhanced notice in the employment contract.

Holiday Pay

Employees are usually entitled to be paid for accrued but untaken annual leave up to their termination date.

Enhanced Redundancy Pay (If You Offer It)

Some employers offer enhanced redundancy pay (for example, to reduce dispute risk or as part of a settlement). If you do, make sure the terms are clearly documented and consistently applied.

Settlement Agreements (Sometimes)

In some situations, employers use settlement agreements to record the exit terms and reduce the risk of future claims. This is more common where the redundancy process is higher risk, the employee is senior, or there are existing issues in the employment relationship.

This is one of those areas where tailored advice matters - the “right” approach depends heavily on your facts.

Key Takeaways For Employers

• Redundancy should be used for a genuine business reason (closure, relocation, or reduced need for certain work), not as a shortcut for performance management.
• A fair redundancy process usually includes planning, identifying the selection pool, meaningful consultation, objective selection criteria, and exploring suitable alternative roles.
• If you’re proposing 20 or more redundancies within 90 days at one establishment, collective consultation obligations may apply, the minimum consultation periods are mandatory, and the penalties for getting it wrong can be serious.
• Your biggest legal risks are typically unfair dismissal claims, discrimination issues in selection/scoring, and collective consultation failures.
• Redundancy costs often include statutory redundancy pay (if eligible), notice pay, accrued holiday pay, and sometimes enhanced terms or settlement agreements.
• Strong documentation and consistent communication help reduce both legal risk and the operational impact on your remaining team.

If you’d like help planning a redundancy process, reviewing your documents, or getting advice on the safest way to restructure your team, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.