Redundancy pay, process and rights explained

Thousands of workers have been made redundant in recent months, with financial and tech firms among those shedding huge numbers of jobs.

About 15,000 banking jobs have been cut this winter, while Spotify, Alphabet and Microsoft recently announced staff losses.

Faced with high inflation, many businesses have tried to absorb rising costs but there are signs some are now letting staff go. Figures from the Office for National Statistics show that redundancy numbers are starting to edge up, with the redundancy rate increasing to 3.4 per 1,000 employees.

Meanwhile, there are fears 2023 could see a wave of company collapses, with the number of firms on the brink of going bust jumping by more than a third at the end of last year, according to insolvency firm Begbies Traynor.

This is due to high costs, customers cutting back and firms repaying Covid loans.

Redundancy might be something that you see approaching on the horizon, but it can also strike out of the blue.

We explain how the redundancy process works, what pay you’re entitled to, plus your redundancy rights.

 What is redundancy? 

You could be made redundant if the job you’re doing ceases to exist. This usually happens when there is a restructure or because the company you're working for has gone bust. 

If you are selected for redundancy, then there are rules which your employer must follow. These include:

• A fair selection process 
• A consultation with you
• A notice period 
• Redundancy pay (depending on a minimum of two years' service) 
• A suitable alternative role if possible 
• Reasonable time off for job hunting

Tracey Moss, senior employment expert at Citizens Advice, says: “It’s completely understandable that you may find the rules and procedures overwhelming, but you don’t have to face redundancy alone - your nearest Citizens Advice will help you.”

If you think your employer isn’t following the law or believe you've been treated unfairly, you could make a claim for unfair dismissal or even ask for compensation for not consulting with you properly.

What is the redundancy process? 

If you are facing redundancy your employer will take you through either an individual or collective consultation process.

If there are fewer than 20 employees in the business, your employer will consult with you individually. If there are more than 20, there is usually a collective consultation. A union rep or an elected employee rep will normally be involved too. 

If you're going through a collective consultation, your employer should carry out a stricter and more structured process, covering what the company is doing to reduce the number of people losing their jobs and what support it is giving to those facing hardship. 

If you have been at your company for at least two years or are on maternity/parental leave, your employer should offer suitable alternative employment as part of the consultation process. This may not be the same as your current job and you do not have to accept it. If you do accept it, you can start it up to four weeks after the end of your current one. You can then try it for four weeks to see if it is right for you.

If other employees are offered different roles and you have not, there could be a case for unfair dismissal, unless there is a good excuse. 

What notice period am I entitled to when being made redundant? 

The notice period will very much depend on how long you've worked at the company. If you've been there for one month to two years, it's one week’s notice. If you worked there between two and 12 years, you'll get a week's notice for each year you worked. If you were with the company for over 12 years, then take note that the notice period is capped at 12 weeks. 

You could get pay in lieu if your employer doesn’t want or need you to work your notice period. This will be a lump sum and it is subject to tax.

You could ask for gardening leave, which means you can serve your notice without actually working. You will still be legally employed and receive your normal salary and benefits until your notice period ends.

Redundancy pay: how much will I get?

If you've been with your company for two years, you should get what is known as statutory redundancy pay. You can work out how much this is using a redundancy calculator. The exact amount will depend on your age and your salary. 

If you’re under 22, it’s half a week’s pay for every full year you worked there. If you're aged 22-40, it's a week's pay per full year. If you're over 41, you should get a week and a half’s pay for every full year you worked.

The first £30,000 is tax-free, but anything above that is taxed at your normal income tax rate.

If you have any annual leave that you did not take, you will get paid for that too.

If your employer offers voluntary redundancies, it is likely you will receive a higher amount of redundancy pay.

Regardless of the situation, it may be worth considering if you can negotiate a better redundancy package. Speak to an employment solicitor or possibly a union representative to discuss your options.

If your employer has gone bust, don’t worry, you will still get redundancy pay, but you will have to claim it from the government.

What are my redundancy rights?

If your employer is holding back on what you’re entitled to, then there are things you can do:

• Speak to your HR department if you have one
• Contact a trade union (you can speak to them, even if you are not a member)
• Complain via your employer’s grievance procedures 
• Contact the arbitration service Acas 
• Take your employer to an employment tribunal

If you think you are being let go unfairly, you can appeal against your redundancy. You should speak to Citizens Advice or a trade union first.

Can I be made redundant while on maternity leave, sick leave or holiday? 

You can be made redundant if you are on sick leave, maternity leave or holiday. 

Consultations for women on maternity leave must be around the same time as anyone else put forward for redundancy - not after, or you could make a challenge under the maternity discrimination law.