Voluntary redundancy: Employee and employer rights

As retail and restaurant closures continue to build across UK high streets, redundancy has certainly become a topic that businesses cannot afford to ignore. Following a large spike in redundancies during the last recession in 2009, levels have remained reasonably solid ever since, with roughly 100,00 people made redundant every year in the UK.

Despite this however, the UK’s retail sector in particular remains in a dire state, with figures from the first three months of 2018 showing that a further 3 percent of people had lost their jobs or had their hours cut within the sector.

With increasing numbers of businesses facing closure, cashflow problems or areas of obsolescence, it is more important than ever that businesses carefully plan for contraction and expansion, relocation and organisational and structural company changes. One way in which employers look to retain business viability and cut unsustainable costs is to offer voluntary redundancy packages to their employees.

What is voluntary redundancy?

Voluntary redundancy is a term used to refer to a package, usually made up of a financial incentive, which is offered by an organisation to encourage an employee or group of employees to voluntarily terminate their contracts in return for the financial incentive.

Voluntary redundancy is usually offered to an employee in situations where business downsizing or restructuring is due to take place. It is usually offered to more senior or long-term employees, but all employees should be able to apply if they wish to be considered.

Will everyone be eligible for voluntary redundancy?

It is entirely your decision who you decide to accept for voluntary redundancy from your business. Voluntary redundancy is normally open to all employees, but just because they may choose to apply, this does not mean that they will all be accepted.

You should carefully consider the financial implications of allowing different employees to take redundancy, against the loss of skills and knowledge against your business in the future.

Why do employers offer it?

Businesses tend to offer voluntary redundancy for various reasons, but one of the main causes tends to centre around company costs. With such a large proportion of business outlay assigned to paying staff salaries, a sudden downturn could well result in it becoming necessary to reduce headcount in order to save on costs.

Voluntary redundancy can also be a way to avoid having to instigate any compulsory redundancies. This can then allow those who are unhappy, or who may already be considering leaving an open avenue by which to leave. It can also avoid having to decide which method to use to select those that could be chosen for compulsory redundancy. It can be a very tough decision to forcefully make any staff redundant, so if there is any way to allow some staff to self-select, it can make a difficult situation a little more comfortable.

Offering voluntary redundancy is often viewed as a more positive move from an employer than simply enforcing a widescale redundancy situation onto staff. It is more consultative, and therefore has a less damaging effect on a company’s reputation when employees choose of their own free will whether or not to put themselves forward. It can eliminate disagreements and bad feeling, and is far less devastating to overall morale than compulsory redundancy.

Are there any alternatives?

If you are opposed to the idea of any redundancy action within your business, there are some alternatives that you could consider that may work equally well for your business.

One option could be offering the option of early retirement to some members of staff. This could result in vacancies becoming available within the business, which could then be taken up by employees who might have otherwise been at risk of redundancy.

Other measures that you could consider in order to avoid any type of redundancy include introducing an external recruitment freeze for a set period of time, severely restricting or banning overtime, introducing the concept of job shares in certain areas, or offering voluntary sabbaticals, career breaks or secondments.

What about voluntary redundancy notice periods?

If you do decide to go ahead and offer voluntary redundancy to any members of your workforce, the notice period that you must provide them with depends largely on how long they have been with your business.

If you offer an occupational pay and benefits scheme, then you are entitled to set your own notice periods for redundancy, so long as they are not shorter than the statutory limits. The statutory notice periods that you must provide include:

• One week’s notice (For those employed between one month and two years)
• One weeks’ notice for each year (For those employed between two and 12 years)
• 12 weeks’ notice (For those employed for 12 years or more within your business)

You should also note that the employees in question are also entitled to ‘reasonable’ time off in order to search for new employment. However, this normally only applies to employees who have been continuously employed for a period of two years or more within your business.

How does voluntary redundancy pay work?

Employees may be entitled to redundancy payments if you have continuously employed for them for at least two consecutive years.

If your business does not have a contractually enhanced pay arrangement, employees with at least two years of continuous employment are entitled to statutory redundancy pay of:

• Half a week’s pay for each full year of service, whilst they were aged under 22
• One week of pay for each full year of service, whilst they were aged 22 or older, but under 41
• One and a half week’s pay for each full year of service, whilst they were aged 41 or older

Employees can only count a maximum of 20 years of service, and the ‘weekly pay’ is subject to an upper limit. The maximum statutory redundancy payment available to employees is capped at £508 per week.

The fee offered for redundancy is often more than the amount offered for statutory redundancy pay (in the occurrence of compulsory redundancy), and usually takes into account factors such as age, salary and length of service. The first £30,000 of any redundancy pay is also free from any tax or national insurance payments.

What are settlement agreements?

If you are concerned about any backlash from employees choosing to take voluntary redundancy, you could consider asking them to sign a settlement agreement.

Settlement agreements exist as legally binding contracts that waive an individual’s rights to make covered by the agreement to an employment tribunal or court. This type of agreement must be formally agreed upon in writing, and normally stipulates the amount of redundancy pay that the employee will receive upon leaving the company, as well as providing a good reference.

Can voluntary redundancy be enforced?

Voluntary redundancy cannot be enforced, and it is not compulsory – it must be taken voluntarily by the employee.

This also means that there is no obligation for your employees to accept the terms that you may decide to offer as part of your voluntary redundancy package.

Are employees entitled to different rights if they leave work voluntarily?

Your employees are entitled to the same rights as they would have been had they not been made redundant by choice.

In fact, the Employment Rights Act 1996 specifically stipulates that voluntary redundancy is not actually considered a resignation, and is therefore classed as dismissal. As a result, employees do not lose any rights to redundancy pay, and, as an employer, you must go through the same consultation process and protocols as you would with any other redundancy situation.

This largely means that you should:

• Consult with all employees individually, and inform them of their legal rights
• Include adequate advice and information as to how the redundancy process will be implemented, what financial compensation will be offered, what notice periods will be applied, and any other relevant information.
• Fully answer any questions or concerns surrounding the terms that you are offering

What responsibilities do I have towards employees taking voluntary redundancy? 

Your employees that have decided to take voluntary redundancy should be treated in exactly the same way as all other employees within your business.

Up to the end of their agreed notice period, you should ensure that you continue to adhere to the law regarding pay, pensions, holidays, sickness and treatment for discrimination, harassment and bullying.

In terms of the redundancy situation, you should ensure that the employees in question are kept fully informed about the process at all times. This includes carefully planning well in advance who could be affected or selected, involving them in individual consultations, being transparent about your selection criteria, and attempting to transfer employees to other suitable roles if at all possible.