Redundancy Pay Under 2 Years in the UK: What Employers Should Know

Making roles redundant is never easy, but it does happen as your business evolves. If you’re navigating redundancies for employees with less than 2 years’ service, the rules are a little different - and getting them right will help you protect your business and treat people fairly.

In this guide, we break down your legal obligations around redundancy pay under 2 years, what “continuous employment” really means, the process you should follow, and smart ways to reduce risk. We’ll keep it practical and plain-English so you can move forward with confidence.

What Does Redundancy Mean - And When Can You Use It?

Redundancy is a specific type of dismissal. You can use it when:

• Your business closes or part of it closes;
• You move location and can’t offer the same roles;
• You need fewer employees doing particular work (for example, new tech automates tasks, or demand drops); or
• You reorganise and the work a role used to do genuinely disappears.

It’s important not to use “redundancy” to deal with performance or conduct problems - that’s a different legal route with different risks. If you’re unsure which route fits, take a moment to review how ending an employment contract fairly works and seek advice early.

Do You Owe Redundancy Pay Under 2 Years’ Service?

In short: statutory redundancy pay only kicks in once an employee has at least 2 years’ continuous service with you.

Under the Employment Rights Act 1996, employees with less than 2 years’ service:

• Do not qualify for statutory redundancy pay; and
• Generally cannot bring an ordinary unfair dismissal claim (there are important exceptions we cover below).

That said, you still need to handle the process lawfully and pay what’s due on termination (for example, notice and accrued holiday pay). It’s common for businesses to offer a modest ex gratia amount as a goodwill gesture or to secure a clean exit, especially where there’s any risk. If you’re considering offering extra compensation, read up on enhanced redundancy pay and when a settlement agreement is sensible.

What Else Must You Pay When Redundancy Is Under 2 Years?

Even if statutory redundancy pay doesn’t apply, you still need to wrap up the employment correctly. That usually includes:

• Notice pay - Employees with between 1 month and 2 years’ service are entitled to a minimum of 1 week’s statutory notice (or more if their Employment Contract provides more generous notice). You can pay in lieu if your contract allows (PILON), or place the employee on garden leave if that’s permitted by contract.
• Accrued but untaken holiday - Pay any outstanding statutory and contractual holiday on termination.
• Outstanding wages, commissions or expenses - Settle any sums earned up to the termination date.

Make sure your calculations reflect the correct service length and any contractual terms that go beyond statutory minimums. If your business is closing entirely, it’s also worth understanding employee rights when a company closes down so you can plan the exit properly.

How Do You Work Out “Less Than 2 Years” - What Counts As Continuous Employment?

Whether someone is “under 2 years” depends on continuous employment. It’s not always as simple as looking at the hire date on your HR system.

Key points to check:

• TUPE transfers - Service normally carries over if you acquired staff from another business (so their previous service often counts).
• Fixed-term and casual arrangements - Repeated contracts or assignments without a significant break can add up to continuity.
• Certain breaks don’t break continuity - Short gaps, sickness, maternity, and some other statutory absences usually still count as continuous service.

It’s wise to confirm the true service date before you make decisions. Start with an overview of why service length matters and then double-check the rules on calculating breaks and their impact. A mistaken calculation can be costly if it turns out the employee actually has 2+ years’ service and you’ve handled things on the wrong basis.

What Process Should You Follow For Redundancy Under 2 Years?

Even where the employee has less than 2 years’ service, it’s still important to follow a sensible and fair process. Why? It reduces the risk of discrimination or other day-one-right issues, supports morale, and shows regulators you acted responsibly if questions arise.

1) Identify The Genuine Redundancy Reason

Document the business rationale - falling demand, restructure, tech changes, closure of a unit. Keep evidence (forecasts, budgets, board minutes). This will be useful if your reasoning is ever challenged.

2) Define The Selection Pool And Criteria

If more than one person does similar work, define a fair “pool” and set objective criteria (skills, qualifications, performance history, disciplinary record). Avoid anything that could indirectly discriminate, like criteria tied to part-time status (potentially sex discrimination) or disability-related absence.

3) Consult Properly

Run at least one meeting with the employee to explain the proposal, share your rationale, and ask for input (including any alternatives to redundancy). Consider suitable alternative roles if any exist. Give them time to respond before you make a final decision.

If you’re proposing 20 or more redundancies within 90 days at one establishment, collective consultation rules under the Trade Union and Labour Relations (Consolidation) Act 1992 apply regardless of service length. You’ll need to consult representatives and file an HR1 with the Insolvency Service within the statutory timescales.

4) Confirm The Outcome In Writing

Issue a letter confirming the redundancy dismissal, the termination date, notice/PILON arrangements, and final payments (including holiday pay). While the right to written reasons typically applies after 2 years’ service, note that pregnant employees or those on maternity leave have a day-one right to written reasons.

5) Pay Accurately And On Time

Pay final sums when due, and provide an itemised payslip so the employee can see how you’ve calculated notice, holiday and other amounts. Following the basics in the Employment Rights Act 1996 will help you tick off the essentials.

What Risks Still Apply Before 2 Years - And How Do You Mitigate Them?

While ordinary unfair dismissal claims usually require 2 years’ service, there are several day-one rights and exceptions you should build into your risk assessment:

• Discrimination - Employees are protected from discrimination from day one under the Equality Act 2010. Avoid selection criteria that could disadvantage people based on protected characteristics (sex, disability, race, age, religion, sexual orientation, pregnancy/maternity, gender reassignment, marriage/civil partnership).
• Whistleblowing - Dismissing or selecting someone for redundancy because they made a protected disclosure (whistleblowing) can trigger an automatic unfair dismissal claim (no service threshold).
• Health and safety - Don’t select employees because they raised health and safety concerns or took steps in relation to health and safety.
• Family leave and pregnancy - Special protections apply in pregnancy and maternity. There are also priority rights to suitable alternative vacancies for those on maternity leave in a redundancy situation.
• Trade union activities - Selection due to union membership or activities is prohibited.
• Asserting statutory rights - Dismissing someone because they asserted a statutory right (e.g. asking for minimum wage, holiday rights) can be automatically unfair.

Practical tips to reduce risk:

• Use documented, objective selection criteria and keep scoring records.
• Consult and consider alternatives - even where not strictly required - to show reasonableness.
• Offer suitable alternative roles where available and document why a role is or isn’t suitable.
• Consider a modest ex gratia payment and a settlement agreement for a clean break where there’s any heightened risk profile.

If you’re weighing redundancy against other exit routes, it can help to understand the differences between severance and redundancy so you choose a path that fits your circumstances.

How To Communicate Redundancy Under 2 Years Without Burning Bridges

Managing the human side matters. Clear and respectful communication can reduce conflict and maintain your reputation with remaining staff and future candidates.

• Plan your messaging - Explain the business reason in simple terms and be transparent about the process.
• Be consistent - Keep your story straight across all impacted employees and managers.
• Provide practical support - Where possible, offer references, time off to attend interviews during notice, or job-search support.
• Close the loop - After consultation, let people know you considered their input, even if the outcome is unchanged.

Treating people fairly is not only the right thing to do - it’s also a strong defence if your decisions are later scrutinised.

Documentation You’ll Need (And Why It Matters)

Having the right paperwork helps you stay compliant and demonstrate fairness if you’re challenged. For redundancies under 2 years, your pack will usually include:

• Business case - A short paper setting out the genuine redundancy reason and alternatives considered.
• Selection criteria and scoring matrix - Transparent, objective criteria applied consistently.
• Invitation letters - For consultation meetings and to request feedback or alternative proposals.
• Outcome letter - Confirming dismissal for redundancy, termination date, payments, and appeal information (if offered).
• Settlement agreement (optional) - If you’re offering an ex gratia payment in return for waivers, ensure it’s properly drafted and independently advised.

It’s smart to align your documentation with your Employment Contract terms (notice, garden leave, PILON, redundancy clauses) and any procedures in your staff handbook. If the employment relationship is ending for business reasons rather than conduct, your process should be consistent with your broader checklist for ending employment fairly.

Special Scenarios To Watch For Under 2 Years

Multiple Sites Or Group Companies

If you operate across multiple sites or within a group, think carefully about the “establishment” for collective consultation purposes and whether suitable alternative roles exist in other entities or locations.

Fixed-Term Employees

Ending a fixed-term contract early for business reasons might expose you to damages for the unexpired term unless your contract allows early termination with notice. Redundancy may still be the reason, but the payment obligations differ from statutory redundancy pay.

Zero-Hours And Casuals

Depending on the pattern of work and how “casual” the arrangement really is, continuous service can accrue. Double-check service status before you assume the employee is under 2 years.

Company Closure Or Insolvency

If your company is closing, a different set of considerations apply (including potential claims through the National Insurance Fund). It’s worth reading through employee rights on company closure to plan the practical steps and communications.

Step-By-Step: Redundancy Process Under 2 Years

If you’d like a concrete sequence to follow, here’s a simple roadmap you can adapt to your business:

1. Check service length and status - Confirm continuous service and whether anyone is actually at or over 2 years. Cross-check TUPE history and breaks in service.
2. Write the business case - Clarify the genuine redundancy reason with evidence.
3. Define the pool and criteria - Identify who is in scope and set fair, objective criteria.
4. Run consultation - Send “at risk” letters, hold meetings, consider representations, and look for suitable alternatives.
5. Decide and confirm in writing - Issue the outcome letter with notice/PILON and final payments.
6. Pay correctly and promptly - Notice, holiday, and any contractual sums (plus any agreed ex gratia).
7. File HR1 and consult collectively - Only if 20+ redundancies within 90 days at one establishment.
8. Update records and learn - Keep an audit trail and note any improvements for future processes.

If any step feels unclear, it’s exactly the kind of situation our team covers in our Redundancy Advice service - we’ll help you tailor the process, documentation and timeline to your situation.

FAQs Employers Ask About Redundancy Under 2 Years

Do We Have To Offer Alternatives If There’s No Statutory Redundancy Pay?

It’s still best practice to look for suitable alternative employment. It reduces risk (especially discrimination risk), shows reasonableness, and can help you retain skills elsewhere in the business.

Can We Just Pay In Lieu Of Notice?

Yes, if your contract permits payment in lieu of notice (PILON). If it doesn’t, you can propose it, but strictly you may need agreement. Check the contract wording before you announce PILON.

Should We Offer A Settlement Agreement?

Consider it where there’s a day-one-right risk, a potential dispute, or you want to provide extra support and certainty for both sides. Any waiver of claims requires independent legal advice for the employee to be valid.

Do We Have To Explain The Reason In Writing?

Employees usually gain a right to written reasons after 2 years’ service. However, those dismissed during pregnancy or maternity leave have a day-one right. Even where not required, a short, clear outcome letter is sensible to record the process and reduce confusion.

What If We Get The Service Calculation Wrong?

If someone actually has 2 years’ continuous service, statutory redundancy pay and ordinary unfair dismissal rights may apply. This is why verifying continuity up front is essential - start by reviewing continuous employment rules and how to handle service breaks.

Key Takeaways

• Statutory redundancy pay does not apply under 2 years’ continuous service - but you must still pay notice (or PILON), accrued holiday and any contractual sums.
• Confirm true service length before you act. TUPE, fixed-term renewals and certain absences can mean an employee has hit the 2-year threshold without it being obvious.
• Follow a fair, documented process: define the pool, use objective criteria, consult, consider alternatives, and confirm the outcome in writing.
• Day-one rights still apply. Avoid discriminatory selection, and be careful with pregnancy/maternity, whistleblowing, health and safety, union activity and asserted statutory rights.
• Collective consultation duties (and HR1 filing) apply if you propose 20+ redundancies within 90 days at one establishment, regardless of service length.
• Where risk is higher, consider a modest ex gratia payment and a settlement agreement for a clean exit, and keep your approach consistent with the Employment Rights Act 1996.
• If your business is closing or undergoing a major restructure, plan ahead for the additional steps and read up on employee rights on closure.

If you’d like tailored support running a redundancy process under 2 years - including letters, process planning, and risk management - our team can help. You can reach us on 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.