What is redundancy?

Redundancy is a situation where an employer dismisses an employee because the job is no longer required. This is very different to a sacking, as the dismissal shouldn’t be to do with disciplinary or performance-related issues; it’s because the particular role itself no longer exists.

Reasons for redundancy usually include:

• Machines or computer programs being able to do the job instead;

• Cost-cutting measures resulting in a reduction or reorganisation of staff;

• The business is relocating, has been acquired by another company, or is closing down.

If you’ve been made redundant, don’t panic. This guide will help you understand what has happened, what your legal rights are, and what your next move should be.

How to cope with redundancy

Finding out you’ve been made redundant can be a shocking and worrying event.

It might feel like the rug has been pulled out from under you, and that you might struggle to make ends meet.

Losing a job is generally a pretty demoralising experience, and can be a big blow to your self-esteem. It’s important to remember though - you’ve been made redundant because the role is no longer required, not because you’ve done something wrong or weren’t good enough at the job.

Don’t worry about redundancy looking bad on your CV or having to explain it to your next potential employer - it’s absolutely nothing to be ashamed of.

It may, however, take a bit of soul-searching to work out what you want to do next, so making sure you’re in a healthy, focused frame of mind is vital. You owe it to yourself to take some time to clear your head before getting started with the advice laid out in this guide.

Understanding redundancy: What is it and why it matters

Is my redundancy fair?

If your employer has said that your position is at risk of redundancy, they have to show they’ve been fair when choosing whether to do so. Your employer has a responsibility to speak to you explaining why this is happening, and to outline any possible alternatives; they should also consider any suggestions you have to retain your job. This is called a consultation.

Your employer also has to hold a group consultation if 20 or more people are being made redundant (called collective consultation). The group consultation must start at least 30 days before anyone’s job ends, unless 100 or more people are being made redundant, in which case this goes up to 45 days (in England, Wales and Scotland; in Northern Ireland it’s 90 days).

Your employer must select those who are at risk of redundancy in a fair way. If more than one job is being made redundant then a redundancy ‘pool’ is usually defined. You can read more details about that here.

Your employer must also look to see if there’s any alternative work for you. You can read more about that here.

If your redundancy is confirmed you must be given a right to appeal the decision.

If your employer doesn’t follow these ‘rules’ then your redundancy may be unfair and you can appeal against their decision to make you redundant. Once you've familiarised yourself with the dismissal and disciplinary procedure of the company, you'll be able to ascertain whether there has been any malpractice. If you’ve worked for your employer for two years or more (or one year in Northern Ireland) you can then make a claim to an Employment Tribunal if that appeal is not successful.

The other ways your redundancy may be unfair is in the following situations:

As laid out by Citizens Advice, your redundancy (and any other type of dismissal) is unfair, regardless of your length of service, if you’re chosen for redundancy solely because you:

• asked for basic workers rights - for example minimum wage, holiday or sick leave, flexible working, maternity leave and pay, rest breaks, auto-enrolment pension;

• took action about health and safety - for example making a complaint;

• are a whistleblower - you’ve reported your employer for doing something illegal;

• work part-time or are on a fixed-term contract;

• work in a shop and refused to work on a Sunday;

• are in a trade union or have been on an official strike (or refused to join a trade union);

• have been on jury service;

• have been discriminated against in any way

These are called ‘automatically unfair reasons’. They’re unfair no matter how long you’ve been working for your employer (you don’t need to have worked there two years).

You might be able to show you’ve been dismissed for an automatically unfair reason if - for example - colleagues with similar jobs aren’t considered for redundancy, or if you’re made redundant suspiciously soon after highlighting a workers rights issue.

There's been a handful of high profile companies letting employees go sporadically in recent years, and questioning the legality of mass redundancies has become a huge talking point. If you experience any uncertainty in terms of the legality of the redundancy you have been given, contact your nearest Citizens Advice if you think your employer has unfairly chosen you for redundancy, as you might be able to challenge the decision.

Redundancy pay

Am I entitled to a redundancy payment?

As per your employer’s legal responsibilities, you are entitled to a payment if you have been made redundant and:

• You have a permanent (open-ended) contract;

• You have at least two years continuous service with your employer on the effective date of termination.

If you’re employed on a Fixed Term Contract, with two years continuous service, which ends without being renewed, or ends early, because of a redundancy situation you may also be due a redundancy payment. You’re not entitled to statutory redundancy pay if you fall into one or more of these categories:

• former registered dock workers (covered by other arrangements) and share fishermen;

• crown servants, members of the armed forces or police services;

• apprentices who aren’t made an employee at the end of their training;

• a domestic servant who’s a member of the employer’s immediate family

How much redundancy pay am I entitled to?

Providing you meet the criteria we’ve outlined earlier in this section, you’ll be entitled to:

• half a week’s pay for each full year you were under 22;

• one week’s pay for each full year you were 22 or older, but under 41;

• one and half week’s pay for each full year you were 41 or older.

If you were made redundant on or after 6th April 2020, your weekly pay is capped at £538 and the maximum statutory redundancy pay you can get is £16,140. In Northern Ireland the limits are £560 per week and £16,410 maximum).

If you were made redundant before 6th April 2018, these amounts will be lower. Gov.uk has provided a calculator to work out how much statutory redundancy pay you’re likely to qualify for.

Statutory Redundancy Pay is based on your ‘weekly’ pay, under your contract of employment at the time of redundancy. So, if you currently work part-time (but have previously worked full-time and your current part-time hours are on a permanent contractual basis and are your normal working hours now) your employer is only obliged to calculate your redundancy payment on your reduced part-time salary.

Length of service is capped at 20 years.

How do I work out my length of service?

Your length of continuous service starts from the day your employment began, and ends on the date your statutory notice ended (also referred to as the ‘relevant date’).

If you weren’t given the proper amount of notice (one week for each completed year of service you have with your employer (up to a maximum of 12 weeks), the extra notice you should have had is added on.

Some breaks in normal employment still count towards a continuous employment period.

These are:

• Sickness, maternity, paternity, parental, or adoption leave;

• Annual leave;

• Employment overseas with the same company;

• Time between unfair dismissal and an employee being reinstated;

• When an employee moves between associated employers;

• Military service, eg with a reserve force;

• Temporary lay-offs;

• Employer lockouts;

• When a business is transferred from one employer to another;

• When a corporate body gets taken over by another because of a legal change.

• Any official Furlough leave, under the Coronavirus Job Retention Scheme (CJRS) during the Coronavirus pandemic of 2020.

Are redundancy payments taxed?

You won’t be taxed on redundancy pay (including any severance pay) totalling under £30,000. However, your employer will deduct tax and National Insurance contributions from any wages or holiday pay and notice pay they owe you.

Does a company pay redundancy when insolvent / in liquidation?

If there are insufficient funds to pay you, you’ll be entitled to claim redundancy and other payments from the National Insurance Fund (NIF). This is subject to a cap which is currently £538 per week.

Can I ask to leave earlier?

If you’ve been given notice of redundancy you can ask to leave earlier. If your employer agrees to this, you’ll still be able to receive your due redundancy payment.

If your employer doesn’t agree and you leave early you may lose your redundancy payment.

You won’t be due a redundancy payment if you resign of your own accord, but you can volunteer to take redundancy if your employer needs people to do so. Providing your application is accepted, you’ll qualify for a redundancy payment and the appropriate notice period.

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Staying on with the company

What is redeployment?

Redeployment allows an opportunity for employees whose positions are at risk of redundancy to find a new job at the same place of work. Your employer can’t force you to accept an offer of alternative employment, but you won’t be due a redundancy payment if you unreasonably refuse a suitable alternative job offer which is relevant to your skill set and experience.

When deciding whether it’s reasonable for you to turn down an offer of alternative employment, a tribunal will look at your specific circumstances, including:

• How much time you’ve been given to consider the new job;

• Whether the role’s temporary or not;

• Whether the new job has the same or very similar terms (pay, status, place of work, duties, hours, responsibility) as your old job

• The impact it’ll have on your personal situation (if it’s at a different location for example, the effect on your family life and your health).

Refusing an alternative role during redundancy: What are your rights?

The onus is on the employer to show both your suitability for the job and if you have refused it, that your decision is unreasonable.

You’ll forfeit your right to statutory redundancy payment if you refuse such an offer unreasonably and any of the below are true:

The offer of the alternative employment was made before the end of the previous employment and you were given details of the new job;

The new job starts on the termination of the old job or within four weeks of it; The job that is offered has the same terms as the original contract, or if they differ the job is still seen as suitable alternative employment.

If you disagree that the alternative job you’ve been offered is suitable, you may be able to claim for statutory redundancy pay and unfair dismissal at an Employment Tribunal after you’ve followed your company’s internal grievance or appeal process.

Statutory Trial periods

If your employer offers you a new job that is a reasonable alternative to your old job, but where there are some differences to the old position and its terms and conditions, you’re entitled to a four week statutory trial period in the new job. If you stay in the new job after these four weeks you’ll be considered to have accepted the new job, if you don’t say differently, and will forfeit your redundancy payment.

If either you or your employer terminates (or gives notice to terminate) the new contract, you’ll be classed as being dismissed by redundancy and will still qualify for a redundancy payment.

However, if the work is suitable and you’re seen as ‘unreasonably’ terminating the contract you’ll lose the right to a redundancy payment.

If at the end of the four weeks you need more time for re-training the period may be extended (as long as this was agreed at the outset).

It’s possible to start a new four week trial period in another alternative job if the first new job/trial period is unsuitable. This should generally start immediately after your previous job has ended.

Redundancy and workers’ rights

Maternity or Paternity Leave

If a redundancy situation arises while you’re away on maternity, paternity, or adoption leave, you must be offered a suitable alternative vacancy if one is available.

Sick leave

If you’re off work due to sickness, your employer should be in regular contact with you if there is a redundancy situation. They should explain the situation and keep you informed of opportunities and news.

Redundancy and state benefits

When you receive Statutory Redundancy Pay (SRP) this doesn’t affect any entitlement you have to claim Job Seekers Allowance or other benefits. You have a legal right to take paid time off your job to look for other work if you’re declared redundant (and have at least two years service).

Short-time and temporary layoff

Statutory redundancy pay can be claimed from your employer if you’ve been temporarily laid off for either more than four weeks in a row or more than six nonconsecutive weeks in a 13 week period. You should write to your employer telling them you intend to claim statutory redundancy pay. This must be done within four weeks of your last non-working day.

Will redundancy affect my pension?

You should usually get pension contributions up to your last day of employment.

Depending on the type of pension your employer provides, you’ll either be able to leave the pension where it is or transfer funds to a new scheme if you choose. You should take financial advice on what’s best for you as this can be a complex area. What should I do next?

Assistance with finding new work

The Rapid Response Service at your local Jobcentre will be able to help you rejoin the world of work. It’s recommended that you get in touch with them as soon as you think you might be made redundant, although they’ll still help you up to 13 weeks after you’ve been made redundant. If you’re on your notice period and you can’t get the appropriate funding from elsewhere, they may also be able to pay for vocational training to help you get back into work quickly.

Consider early retirement

If you’re close to retirement age and have built up sufficient pension savings, maybe you could consider early retirement. It’s important to think about what income you’ll need in retirement and again you should take financial advice on your options.

Go self-employed

You’ll have picked up a vast array of skills in your previous employment - why not combine those skills with your true passion, an area of work that you’ll enjoy and excel at? Monday mornings will never be the same again.

Put some shout outs to your social circle. Chances are someone will have a friend of a friend that needs a writer, photographer, IT consultant, or whatever your specialisation is. It doesn’t hurt to ask your pals and peers - what are friends for, anyway?

Once you’ve got a few clients, we have all the tools you need to help you build a successful and fulfilling freelancing career.

Taking the leap into being a freelancer can seem like gigantic step into the unknown. Starting out might seem scary at first, but getting your head around the basics early on can work wonders in the long run.

Freelancing explained without the jargon

Once you’ve mastered it, freelancing can be the best way to work in the world, giving you the freedom and flexibility to do what you love, whilst living life to the full.

Our Freelancing for Beginners guide will help you to look at the situation objectively, giving practical tips and advice on how to succeed as a freelancing newbie.

Getting financial or redundancy advice

Our friendly experts and qualified accountants are always on hand to offer their help and advice to managing your finances and business journey. So, don’t hesitate to get in touch with our team today.