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A guide to the redundancy process for small businesses

7-minute read

A guide to the redundancy process for small businesses
Jessie Day

Jessie Day

15 October 2021

Making an employee redundant can be difficult for everyone involved. Whatever the reason for your decision, it’s important that you’re clear on the redundancy process from the start.

We’ve teamed up with Farillio, the small business legal support specialists, to give you access to a practical action plan. This includes a series of templates to support you throughout the redundancy process.

Redundancy policy templates – download them all here

Choose to download your templates now, or get them directly from Farillio’s site where you’ll also get access to their full suite of customisable legal templates.

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These templates were produced by Farillio so we can’t take responsibility for their contents. We’d recommend you take professional advice before making any important decisions based on their contents.

Before you start the redundancy process

Before making staff redundant, it’s important to check any alternative options. For example, could you consider reducing your employee’s hours if you’re going through a temporary work shortage?

If you’ve considered all of your other options and you can’t find a way to keep your employee, it’s likely you’ll need to make a redundancy.

Redundancy process step-by-step

Following the correct process is crucial when making a redundancy.

The guidance below gives you the tools you need, including downloads like a redundancy letter and other support materials.

It’s important to get expert legal guidance when making a redundancy. This will help you avoid mistakes that could cause an unfair dismissal claim, or other difficulties.

How the redundancy process changes for certain employees

The number of employees you’re making redundant, as well as their length of service, are important to bear in mind:

Less than two years’ service

If your employee has been with you for less than two years, you don’t need to go through the full redundancy process. Instead, you can give them notice using the normal terms of their contract.

However, it’s important that you follow a compliant, fair dismissal procedure. Use your redundancy policy to make sure you’re getting the basic principle right, as well as any employment contract terms that might apply.

More than two years’ service

If you’ve checked other options for keeping your affected employee (or employees) and you’re confident the redundancy decision is valid, you’ll need to give them formal notification with an at-risk of redundancy letter (see below).

For the rest of this guide, we’ll assume you’ve checked all your alternative options and decided to go ahead with the redundancy.

Multiple redundancies (20 or more people)

If you’re dismissing 20 or more people, you’ll also need to go through a ‘collective consultation’ process, alongside the usual proceedings for individual employees. This gives staff one to two weeks to elect representatives who’ll consult with the company manager(s) on their behalf.

These representatives have the right to paid time off to complete these duties, and have protection from dismissal or other harmful treatment (but no extra pay).

Need to invite staff to elect representatives? Use the invitation template to get started, and the nomination notice. You’ll need to make this available to your employees, so they can choose their representatives.

Getting expert legal advice is crucial, especially when you’re making 20 or more people redundant. You may already be taking advice if this is part of a wider business restructure.

Do I start the redundancy process by letter or conversation?

Where possible, try to have a conversation with your employee(s) before they receive their letter. Explaining things clearly, and the process you’re going to follow, will usually come best from you. It also shows your employee that you’re determined to be fair and approachable.

Plus, it gives you both an important opportunity to try to find an alternative solution.

See the section below: have a conversation first.

How quickly can I make someone redundant?

If you’re losing fewer than 20 employees, your redundancy consultation could be done in a matter of weeks. However, it’s really important that you take the time you and your employees need, avoiding the pain of any future claims.

For redundancies of 20 or more people, the collective consultation period must legally last 30 days for 20-99 employees or 45 days if it’s 100 or more.

Redundancy letter template examples (plus other essential materials)

You’ll need some (or all) of these tools and templates when making a redundancy. Check through the list, read over each template below, and get to know the material you’ll be working with:

  • your company’s redundancy policy
  • at-risk of redundancy letter (template)
  • letter inviting employees to elect employee representatives (template)
  • letter inviting applications for voluntary redundancy (template)
  • redundancy calculator
  • redundancy consultation and provisional selection letter (template)
  • second redundancy consultation and confirmation letter (template)
  • letter informing employee of redundancy and employment termination (template)
  • invitation to appeal hearing letter (template)
  • decision on appeal letter (template)

If your redundancy policy is in place, your next step to move the redundancy process forward will be to use the at-risk of redundancy letter template.

At-risk of redundancy letter template (letter 1)

When is an employee at-risk of redundancy? An employee is at-risk when they’re placed under warning of redundancy, for example if their role isn’t needed or affordable for the business.

‘At-risk’ doesn’t mean they’ll definitely be made redundant, however. You should consider re-deploying them instead, where possible.

At-risk of redundancy letter template download

Your at-risk employee group should receive this letter before you begin any individual consultations.

Have a conversation first

Ideally, have a chat with your employees before you send any letters, so that the news comes from you. The start-to-finish process is likely to be less stressful for you and your employees if your people can see you behaving in a human, approachable way.

What to say

The at-risk of redundancy letter and your conversation with employees needs to make clear:

  • why you may need to make redundancies
  • why particular jobs may be affected
  • how you’ve tried to find alternative options, and
  • that you’d like employees to put forward any suggestions for avoiding these redundancies

Explaining the situation

The at-risk of redundancy letter template prompts you to explain clearly to your staff why the company is in this situation, and this will be key to an easier process.

Legal advice is recommended when drafting this letter. It’s impossible to predict how every employee will react, and having an expert to hand can reassure you that what’s happening is normal (or not), and how to respond.

The alternatives you’ve looked into

Use the template as a guide here, as this is a critical point to make clear to your employees. You’ll need to show you’ve considered as many of these alternatives as possible:

  • recruitment restrictions
  • alternative roles somewhere else in the company
  • retraining
  • voluntary early retirement under the pension scheme
  • voluntary redundancy
  • short-time working and overtime restrictions
  • strategic reorganisation
  • sale of a business or investment

You can invite people to put themselves forward for voluntary redundancy or early retirement. If you decide to do this, you’ll need to make it an option for everyone who’s at-risk, rather than individual employees.

Who’s at-risk?

Your letter will also need to set out which ‘pool’ or group(s) of employees is at highest risk of redundancy.

Making staff redundant in a small business? In this case, all staff might be at-risk.

Selection criteria for redundancy

You’ll need to apply ‘fair and quantifiable’ criteria when deciding who will be at-risk of redundancy selection. This must be impartial, with good records kept alongside it, showing your assessment process.

If dealing with a trade union, you’ll need to work with them on your criteria, but you’ll usually base your decision on things like:

  • length of service
  • performance
  • qualifications
  • skills
  • experience
  • attendance (with reasons for absence taken into account)
  • disciplinary record

It’s legally unfair to identify someone for redundancy using any of these criteria:

  • maternity, paternity, adoption, parental leave, or time off for dependents
  • membership of a trade union
  • part-time or full-time status
  • age, race, gender, sexual orientation, disability, religion or marital status

Remember, you may need to have more than one conversation with your employee about their redundancy, before any final dismissal takes place. Use the redundancy letter templates (plus other essential materials) above to plan and structure these.

What else will you need? More key redundancy letter templates

From the employee representative letter below to the redundancy notice letter template, we’ve added a bit more detail on the redundancy letter templates and materials you might need.

Be sure to follow the list above as a guide to other materials you might need.

1. Employee representative letter

You only need to use this letter if you think you’ll be letting 20 or more people go (in a collective redundancy). Skip this step if it doesn’t apply to you.

Employee representative letter template – download

2. Redundancy notice letter template

You’ll prepare and send this letter once you’ve reached your final decision to terminate your employee’s contract, making them redundant.

Letter informing employee of redundancy and employment termination – download

This is the final letter you’ll send, unless your employee decides to appeal.

3. Redundancy appeal letter

If an employee decides to appeal any decision made as part of the redundancy process, you’ll need to use this letter.

Invitation to appeal hearing letter (template)

Your invitation will explain the redundancy appeal hearing process, and you can attach any documentation you think appropriate (usually material which justifies your decision).

Make sure you’re giving a clear picture of the process to date, explaining all the steps you’ve taken, and what happens in a redundancy appeal hearing, so they’re prepared.

4. Confirmation of redundancy letter (following appeal)

This letter confirms your final decision, after the redundancy meeting has taken place.

Decision on appeal letter (template)

5. Employee rights

Along with a consultation and appeal process, your employees will be entitled to other redundancy rights, including:

  • time off (to look for work)
  • their notice period (or payment in lieu of this)
  • payment in place of accrued (and unused) holiday entitlement
  • redundancy payment (if they’ve served at least two years with you, they’re entitled to statutory redundancy pay)

Your employees may also be entitled to a contractual redundancy payment (in addition to the statutory payment), so you should also check their employment contracts for this. Even if they don’t have a contractual right to a top-up payment, you may choose to make one if you feel it’s appropriate.

6. Notice periods

Statutory minimum notice entitlements will vary, depending on how long the employee has worked for you:

  • one month to two years’ service, the notice period will be one week (minimum)
  • over two years’ service, the notice period will be one week for each year, up to 12 weeks in total

You should also refer to any notice periods in your employee(s)’ contracts, which may mean they’re entitled to a longer notice period (or payment in lieu of their notice period).

Payment instead of notice period

There may be a clause in your employee’s contract which allows them to take payment instead of the notice period. If so, they can leave their role earlier, with this payment.

7. Right to appeal

If your employee disagrees with your decision to make them redundant, they can appeal. They should attend any appeal hearing with their representative, employer and a note-taker, and can challenge your decision.

Invitation to appeal hearing letter (template)

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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