How to Make Redundancies in the UK

Facing a downturn, a restructure or a contract loss can force tough decisions - including whether you need to make redundancies. It’s a stressful moment for any small business owner, and it’s normal to feel unsure about the legal steps.

The good news is that there’s a clear process in UK law. If you follow it carefully, you can reduce risk, treat people fairly and keep your business moving forward with confidence.

In this guide, we’ll walk you through when redundancy is a fair reason for dismissal, the legal steps you must follow, how to manage selection and consultation, what to pay, and the common pitfalls to avoid.

When Is Redundancy A Fair Reason For Dismissal?

Redundancy is a potentially fair reason for dismissal under the Employment Rights Act 1996. In simple terms, a role can be redundant when:

• There’s a business closure (the whole business or a particular site).
• There’s a workplace closure (you stop operating at a location).
• The need for employees to do work of a particular kind has ceased or diminished.

Common scenarios include losing a major client, introducing new technology that changes the work, or merging teams after a restructure.

Redundancy must be genuine. If the real reason is conduct or capability, that should be managed through a fair disciplinary or performance process instead - for example, by using Performance Improvement Plans where appropriate. If you end up dismissing for a non-redundancy reason but label it “redundancy,” you risk an unfair dismissal claim.

Before you start a redundancy process, consider whether there’s a reasonable alternative. Good-faith alternatives can include:

• A hiring freeze or natural attrition.
• Reducing overtime or agency staff.
• Offering voluntary redundancy or early retirement (be careful to avoid any discrimination).
• Agreeing temporary changes to terms (for example, reduced hours) - if you take this path, make sure you follow a proper consultation and obtain valid consent when changing employment contracts.
• Redeployment into suitable alternative roles.

If, after exploring alternatives, you still need to proceed, map out a fair, transparent process and be ready to explain your business rationale to staff.

What Legal Steps Must Employers Follow When Making Redundancies?

The law requires a fair process. The exact steps depend on how many redundancies you’re proposing within a 90-day period at one establishment.

1) Individual Consultation (Fewer Than 20 Proposed Redundancies)

Where you’re proposing fewer than 20 redundancies, you must consult individually with each affected employee. That means explaining the business reasons, the selection approach, any alternatives, potential redeployment and the proposed timescales. Consultation should be meaningful - it’s not a done deal before you’ve heard feedback.

2) Collective Consultation (20 Or More Proposed Redundancies)

If you’re proposing 20 or more redundancies at one establishment within 90 days, collective consultation rules in the Trade Union and Labour Relations (Consolidation) Act 1992 apply. You must consult with recognised trade union representatives or, if none, with elected employee representatives about ways to avoid, reduce or mitigate redundancies. Minimum periods apply:

• At least 30 days before the first dismissal takes effect if proposing 20–99 dismissals.
• At least 45 days if proposing 100 or more dismissals.

You must also submit an HR1 notification to the Insolvency Service. Failing to comply with collective consultation can lead to protective awards (up to 90 days’ pay per affected employee), so diarise the timeframes carefully.

3) Equality And Fairness Duties

Throughout any redundancy process, you must comply with the Equality Act 2010 and avoid discriminatory criteria or decisions (for example, relating to age, disability, pregnancy or maternity, race, religion, sex, sexual orientation, etc.). Selecting someone because they’re pregnant or on maternity leave is automatically unfair. It’s also unlawful to single out employees for redundancy due to whistleblowing, health and safety activities, trade union membership or asserting statutory rights.

4) Suitable Alternative Employment

Before confirming redundancies, you should consider whether there are any suitable alternative roles across your business (including other sites or group companies if practicable). Employees who unreasonably refuse a suitable offer may lose their statutory redundancy pay. Employees on maternity leave have priority for suitable vacancies until the end of their leave period.

5) Time Off To Seek Work

Employees with at least two years’ service are entitled to reasonable paid time off to look for new work or arrange training. Factor this into your planning and schedules.

6) Confirming Outcomes In Writing

If, after consultation, redundancy remains the outcome, you’ll issue dismissal letters confirming the redundancy reason, termination date, notice (or payment in lieu), redundancy pay, accrued holiday and any other sums due. For a process overview, this sits alongside the broader principles in Ending an Employment Contract Fairly.

How To Run A Fair Selection And Consultation Process

Fair selection and meaningful consultation are where many employers slip up. A careful, documented approach will protect you and shows respect to your team.

Define The Selection Pool

Start by identifying the correct “pool” - the group of employees doing the same or similar work. If the need for certain tasks has reduced, consider all employees who perform those tasks, not just those in one team or location, unless you have a sound business reason for a narrower pool.

Choose Objective Criteria

Use clear, objective and evidence-based criteria to score employees in the pool. Typical criteria (used cautiously and consistently) include skills and qualifications relevant to future needs, performance (supported by records), disciplinary record, and flexibility or multi-skilling. Avoid criteria that indirectly discriminate - for example, counting attendance without adjusting for pregnancy-related or disability-related absences can be discriminatory.

Score, Moderation And Records

Score independently where possible, then moderate to ensure consistency. Keep notes explaining how you applied each criterion and what evidence you relied on. This record-keeping can be vital if you need to justify decisions later at an employment tribunal.

If you want a refresher on how tribunals think about fairness, it’s worth revisiting the common pitfalls in Why Employers Lose Employment Tribunals.

Consultation Meetings

Consultation should be genuine. Typically that means:

• Explaining your business reasons and the proposed process at the start.
• Sharing the proposed pool and criteria and inviting feedback.
• Exploring alternatives and redeployment opportunities together.
• Confirming draft scores and offering a chance to comment or correct inaccuracies.
• Considering any representations before making a final decision.

Where collective consultation applies, you’ll also run informed discussions with representatives in parallel, providing the information required by law (e.g. reasons for proposals, numbers and descriptions of employees, selection methods and timescales).

Appeals And Support

It’s good practice to offer an appeal, even where not strictly required. Offering support - references, outplacement, or access to training - can ease the transition and helps maintain your employer brand.

Redundancy Pay, Notice And Final Pay: What You Must Provide

As part of a lawful redundancy, you’ll need to calculate and pay the correct amounts. Errors here are a common source of grievances, so it’s worth double-checking.

Statutory Redundancy Pay

Employees with at least two years’ continuous service are entitled to statutory redundancy pay. The amount is based on age, length of service (capped) and a week’s pay (subject to a statutory weekly cap set each April). You can use the government’s calculator, but remember to check the current cap in force at the time of dismissal.

Some employers offer more generous packages. If you’re considering going beyond the minimum, make sure you understand the tax, fairness and precedent issues that come with Enhanced Redundancy Pay.

Notice Pay (Or Payment In Lieu)

Employees are entitled to statutory notice based on length of service (or a longer contractual notice period if you’ve agreed one). You can either have them work their notice, put them on garden leave if your contracts allow, or make a payment in lieu of notice (PILON) where permitted by the contract.

Accrued Holiday And Other Sums

Pay any accrued but untaken statutory holiday, outstanding expenses, and any contractual bonuses that are due under the terms and timing of your scheme. Be careful with deductions from final pay - only make lawful deductions authorised by contract or agreed by the employee, in line with the rules on wage deductions.

Settlement Agreements And Waivers

In some cases, you may propose a settlement to wrap up severance terms and secure a legal waiver of claims. These need to be drafted carefully and are only valid if the employee has received independent legal advice. If this route fits your situation, get a lawyer to prepare a tailored Deed of Settlement.

Severance Vs Redundancy

Redundancy is a specific legal concept; severance is a broader, non-technical term sometimes used for termination payments. The two are often confused. If you’re weighing options (for example, a negotiated exit versus a formal redundancy), it’s helpful to understand the differences explained in Severance vs Redundancy.

Special Cases And Common Pitfalls To Avoid

Even well-planned redundancy exercises can hit tripwires. Here are areas to handle with extra care.

Pregnancy, Maternity And Family Leave

Selecting someone for redundancy due to pregnancy or maternity is automatically unfair and discriminatory. Employees on maternity leave have priority for suitable alternative roles. Similar protections apply to adoption and shared parental leave - take legal advice before finalising decisions affecting anyone on family leave.

Disability And Health

When an employee has a disability, you must consider reasonable adjustments during selection and consultation (for example, discounting disability-related absences). If you’re dealing with long-term sickness, ensure you’re not using redundancy to shortcut a capability process; review the ground rules for dismissals related to illness in long-term sick leave dismissals.

TUPE Transfers

If you’re selling a business or outsourcing/insourcing services, the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) may apply. Redundancies connected to a TUPE transfer are only potentially fair if there’s an economic, technical or organisational reason entailing changes in the workforce, and a proper consultation process is followed. TUPE is complex - get advice early.

Short Service And Fixed-Term Employees

Employees with less than two years’ service generally can’t claim ordinary unfair dismissal (there are exceptions), and they don’t qualify for statutory redundancy pay. Still, you must follow a fair process and avoid discriminatory selection. Fixed-term employees may be entitled to redundancy pay depending on the contract and circumstances - don’t assume the label “fixed-term” removes obligations.

Company Closure And Insolvency

If you’re winding up your company or closing a site permanently, similar redundancy rules apply. There are additional notice and priority rules in insolvency, so read up on employee rights when a company closes down and speak to a specialist if insolvency is on the cards.

Documentation Gaps

Clear, up-to-date contracts and policies make redundancy processes smoother - for instance, express PILON clauses, garden leave, and accurate notice periods in your Employment Contract. If you’re missing these or your staff handbook is out of date, address that before you start.

Process Shortcuts

Skipping consultation, misapplying selection criteria, or failing to consider redeployment are common reasons tribunals find redundancy dismissals unfair. If you’re uncertain at any stage, early, tailored Redundancy Advice can save time, cost and stress later.

Key Takeaways

• Redundancy is a potentially fair reason for dismissal only where the business or role genuinely ceases or diminishes; if the issue is conduct or capability, consider a performance process like Performance Improvement Plans instead.
• Plan your process carefully: define the right selection pool, use objective criteria, keep good records and consult meaningfully with affected employees (and representatives where collective consultation applies).
• Watch the thresholds and timelines: collective consultation is triggered at 20+ proposed redundancies, with 30/45-day minimum periods and an HR1 notification requirement.
• Avoid discrimination and automatically unfair reasons - adjust criteria for disability-related absences, protect employees on maternity and family leave, and consider suitable alternative roles.
• Pay the correct sums: statutory redundancy pay (if 2+ years’ service), notice or PILON, accrued holiday and lawful deductions only. Consider whether Enhanced Redundancy Pay or a Deed of Settlement is appropriate in your circumstances.
• Tidy your documents: ensure your Employment Contract terms align with how you intend to manage notice, PILON and garden leave, and make sure your policies support a fair process.
• Don’t go it alone if you’re unsure - a short conversation can prevent costly mistakes. Our practical guides on ending employment fairly and avoiding tribunal pitfalls are useful starting points.

If you’d like tailored help planning or running a redundancy process, you can reach us on 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat. We’re here to help you follow the law, protect your business and treat your people fairly.