Managing Administrative Redundancy in the UK: Employer Essentials

If you’re running a small business or startup, “administration” can feel like a worst-case scenario. Cash is tight, deadlines keep coming, and you’re trying to protect what’s left of the business while keeping everyone informed and treated fairly.

One of the hardest parts is working out whether you need to make redundancies while the company is in administration - and if so, how to do it lawfully, quickly, and with as little disruption as possible.

This guide explains what administration redundancy means in practice, what your legal obligations still look like, and how to approach redundancies in a way that reduces risk at a time when you can’t afford extra problems.

What Does “Administration Redundancy” Mean (And Why It Happens)?

In the UK, “administration” is a formal insolvency process under the Insolvency Act 1986 designed to protect a company from creditor action while a licensed insolvency practitioner (the “administrator”) tries to achieve one of the statutory objectives, usually:

• rescuing the company as a going concern; or
• achieving a better result for creditors than immediate liquidation; or
• realising property to make a distribution to secured or preferential creditors.

Redundancies often happen during administration because payroll is one of the biggest costs - and administrators need to stop further losses quickly. Sometimes redundancies are part of a rescue plan; sometimes they’re needed because there simply isn’t funding to keep everyone employed.

From an employer perspective, the key thing to understand is this: being in administration does not “switch off” employment law. While some practicalities change (for example, who is making decisions and how payments are funded), the business still needs to manage redundancy lawfully.

If you need a clearer overview of the process itself and what it means operationally, company administration is a useful starting point before you plan staffing changes.

Who Makes The Redundancy Decision In Administration?

This is where things can get confusing for founders and directors.

Once a company enters administration, the administrator takes control of the company’s affairs and has the power to run the business, sell it, or shut it down. In practice:

• Administrators usually make (or approve) redundancy decisions because they control the business and its spending.
• Directors may still be involved in day-to-day communication and operational support, but their decision-making power is typically limited.
• Managers/HR may be asked to support consultations and process steps, especially if the administrator wants continuity and speed.

If you’re a startup with no internal HR team, you’ll often be leaning on external support. That’s normal - but it makes it even more important to follow a clear process and document decisions properly.

Also, employment documents still matter. Even in a crisis, you should be checking the terms in each person’s Employment Contract (notice clauses, pay terms, job duties, mobility clauses, and any redundancy procedure wording).

Do Normal UK Redundancy Rules Still Apply During Administration?

Broadly, yes. Redundancies during administration still need to comply with UK redundancy law, including key principles under the Employment Rights Act 1996 and, where relevant, collective consultation obligations under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

That means you still need to consider:

• Is it a genuine redundancy? (For example, the business is closing, a location is shutting, or the need for employees to do certain work has reduced.)
• Did you use a fair selection process? if not everyone is being made redundant.
• Did you consult properly? both individually and, if numbers trigger it, collectively.
• Did you consider alternatives? (reduced hours, redeployment, temporary layoff where permitted, etc.)
• Did you give correct notice and calculate final pay properly?

The practical difference in administration is often time and funding pressure. Administrators may need to act quickly - but speed doesn’t remove your legal duties. If the process is rushed or poorly documented, it can still lead to Employment Tribunal claims later (and those risks can affect a rescue, sale, or director exposure in some circumstances).

Collective Consultation: The “Numbers” Still Matter

If you’re proposing to dismiss 20 or more employees at one establishment within a 90-day period, collective consultation rules can apply. That usually means you may need to consult with employee representatives (or a union), follow minimum consultation timeframes, and file the HR1 form (unless an insolvency-specific exception applies - which is fact-sensitive and should be checked).

Even for smaller headcounts, individual consultation is still expected in a fair redundancy process.

It can help to sanity-check your timing and approach against the general redundancy consultation periods that apply to employers.

Step-By-Step: A Practical Administration Redundancy Process For Small Businesses

There isn’t a one-size-fits-all approach - but there is a practical structure you can follow so the process stays fair and defensible even under pressure.

1) Confirm The Business Rationale (And Write It Down)

In administration, decisions are often made quickly, which makes documentation even more important.

Start by confirming:

• what has changed (lost funding, customer contracts ending, site closing, pivot/downsizing);
• why roles are no longer required;
• why other options aren’t viable (for example, no cashflow for payroll); and
• the proposed timeline.

This written rationale often becomes your “backbone” if decisions are later questioned.

2) Identify The Affected Roles And Pools

Redundancy should usually focus on roles, not individuals.

Work out:

• which roles are at risk;
• whether there are multiple people doing similar work (creating a “selection pool”); and
• who may be doing overlapping duties in a small team.

In startups, roles are often blurred. That’s fine - but it means you need to be extra clear on why you’re selecting a pool the way you are.

3) Decide On A Fair Selection Method

If you’re reducing headcount but keeping some people in similar roles, you’ll usually need fair selection criteria.

Common criteria include:

• skills and qualifications relevant to the remaining work;
• performance history (using objective evidence where possible);
• disciplinary record (careful - use consistently applied records);
• attendance (be cautious about disability-related absence and discrimination risk).

Avoid criteria that are subjective (“attitude”, “culture fit”) unless you can back them up with evidence and consistent scoring. In administration, it can be tempting to “just decide”, but that can create avoidable legal exposure later.

4) Start Consultation Early (Even If Time Is Tight)

Consultation is not just a tick-box. It’s your opportunity to:

• explain what’s happening in plain English;
• invite questions and proposals;
• explore alternatives (redeployment, reduced hours, unpaid leave, etc.); and
• reduce surprise and conflict.

For many small businesses, the most realistic approach is:

• a group briefing (where appropriate); followed by
• individual consultation meetings; followed by
• a confirmation meeting/letter if redundancy is confirmed.

Always document the meetings and decisions. If a claim arises later, records matter more than memories.

5) Handle Notice, Final Pay, And Redundancy Pay Carefully

Even in administration, employees may be entitled to notice pay and (if eligible) statutory redundancy pay. The exact entitlements depend on:

• contractual notice vs statutory notice;
• length of service;
• age and weekly pay caps (for statutory redundancy pay);
• holiday accrued and untaken.

In an insolvency scenario, it’s also important to understand who pays what, and when. Depending on the circumstances, some employee entitlements (such as certain arrears of pay, holiday pay, statutory notice pay, and statutory redundancy pay) may be claimed by employees from the National Insurance Fund (via the Redundancy Payments Service), with the insolvent employer’s estate potentially covering anything above statutory limits or falling outside what the Fund covers.

Make sure your timeline aligns with redundancy notice periods, and double-check your obligations around statutory notice pay (especially where cashflow is constrained and insolvency-related payment routes may apply).

Tip: If you’re planning to pay anything above statutory entitlements (for example, an enhanced redundancy package), get specific advice first. In administration, non-standard payments can raise creditor and governance issues.

Common Administration Redundancy Traps (And How To Avoid Them)

When a business is under financial stress, it’s easy to default into “survival mode”. These are some common pitfalls we see - and what to do instead.

Rushing The Process So Much That It Stops Being Fair

Yes, administration can require fast decisions. But fairness usually comes from:

• having a clear redundancy rationale;
• using objective criteria where selection is needed;
• genuine consultation (even if it’s condensed); and
• clear written communication.

If you can show those basics, you reduce the risk of unfair dismissal claims.

Forgetting About Discrimination Risks

Redundancy can accidentally trigger discrimination risk if your selection criteria (or decision-making) disproportionately affects protected groups.

Examples include:

• penalising disability-related absence;
• selecting employees on maternity/adoption/shared parental leave without objective justification;
• informally assuming someone “won’t cope” due to age or health.

This is one area where a short legal check-in can save you a lot of trouble later.

Mixing Up Redundancy With A Performance Exit

In a startup, it’s common to have a few hires that aren’t working out - and at the same time, the runway is shortening.

But redundancy is not the right tool if the real reason is performance or conduct. If the role is still needed and you’re simply changing who does it, that can look like an unfair dismissal dressed up as redundancy.

If it’s genuinely a headcount reduction, redundancy may be appropriate. If not, you should get advice on the right pathway.

Poor Communications That Damage The Team (And The Brand)

Even if your company is struggling, how you handle redundancies can affect:

• your ability to retain remaining staff;
• your reputation with customers and investors;
• the success of a business sale; and
• the risk of disputes escalating.

Use simple, consistent messaging. Don’t over-promise. And don’t leave people guessing - uncertainty is often what causes the most conflict.

What If The Business Is Sold Or Restructured During Administration?

Sometimes administration is used to facilitate a sale of the business (or its assets). If your plan includes a sale, you’ll need to think carefully about employee implications.

Could TUPE Apply?

If the business (or part of it) transfers to a new owner, the TUPE Regulations (Transfer of Undertakings (Protection of Employment) Regulations 2006) may apply. TUPE can mean employees transfer to the buyer on their existing terms, and dismissals connected to the transfer can be automatically unfair unless there’s an economic, technical, or organisational reason involving changes in the workforce.

However, TUPE in insolvency is nuanced. Certain insolvency proceedings (and the purpose they’re being used for) can affect how TUPE applies, including which pre-transfer debts transfer and what information/consultation duties look like in practice. Administration does not automatically remove TUPE risk, and the position often depends on the deal structure and the specific insolvency route being used.

If a sale is on the table, it’s worth reviewing your position against a TUPE checklist early, so you don’t make avoidable mistakes while trying to move quickly.

What If The Company Is Closing Down Completely?

If the outcome of administration is closure, redundancy is often unavoidable. In that case, you’ll want to ensure you:

• still run a fair process as far as reasonably possible;
• manage employee communications carefully (including timelines and pay information); and
• understand what rights and claims employees may have in an insolvency scenario.

This overlaps with the broader obligations employers face when operations stop entirely - and it can help to understand company closure planning, even if you’re still hoping for a rescue.

Key Takeaways

• Administration redundancy is common because payroll is a major cost, but being in administration does not remove your redundancy obligations.
• In most cases, the administrator controls and approves redundancy decisions, but you may still be involved in supporting consultation and communications.
• You should still follow core redundancy principles: genuine redundancy rationale, fair selection (where required), meaningful consultation, and correct notice/final pay calculations.
• If you’re proposing 20+ redundancies within 90 days at one establishment, collective consultation rules may apply (subject to limited exceptions), and timing becomes critical.
• Watch for common traps: rushing so much the process becomes unfair, using subjective criteria, confusing redundancy with performance exits, and overlooking discrimination risk.
• If the business is being sold or restructured, TUPE may apply - and in insolvency situations the rules can be technical, so plan early so redundancies don’t undermine the transaction or trigger extra claims.

If you’d like help managing redundancies during administration, restructuring your team, or preparing the right documents and letters, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.

This article is general information only and does not constitute legal advice. If you need advice on your specific circumstances, please get in touch with a qualified adviser.