How to make redundancy as painless as possible

Making redundancies is one of the hardest decisions any business owner or manager can face. For SMEs, where teams are often close-knit, it can feel even more personal. But sometimes, due to financial pressures, restructuring, or changes in demand, redundancy becomes unavoidable.

Handled well, the redundancy process can be managed fairly and lawfully, helping protect both your business and your people. Handled badly, it can lead to costly tribunal claims and lasting damage to your reputation.

Here’s what UK SME owners and managers need to know about the redundancy process.

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What is redundancy?

In UK law, redundancy happens when:

• The business closes entirely, or
• A workplace closes or relocates, or
• The business needs fewer people to do a particular type of work.

It’s not about an employee’s performance – it’s about the role no longer being required.

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The key steps in a fair redundancy process

1. Identify the business case

Before starting, be clear on why redundancies are necessary. This might be due to declining sales, restructuring, automation, or contract losses. Having a clear rationale will help guide the process and demonstrate fairness if challenged.

2. Determine the pool for selection

You’ll need to decide which group of employees are at risk. For example, if one department is being downsized, everyone in that team may form the “selection pool.”

3. Apply fair selection criteria

You must use objective criteria when deciding who is selected. Common criteria include:

• Skills and qualifications
• Performance and attendance records
• Disciplinary history

It’s vital to avoid discrimination (e.g., against age, gender, disability, or part-time status).

4. Consult with employees

Consultation is a legal requirement. This means meeting with affected employees, explaining the reasons, and exploring alternatives. Even in smaller businesses, genuine consultation is key to showing fairness.

5. Consider alternatives

Redundancy should be a last resort. You’ll need to show you considered other options such as reduced hours, redeployment, or retraining.

6. Give notice and confirm in writing

If redundancy is unavoidable, employees must be given the correct notice (statutory or contractual, whichever is greater). A formal redundancy letter should confirm the decision, notice period, and redundancy pay.

7. Pay redundancy entitlements

Employees with at least 2 years’ continuous service are entitled to statutory redundancy pay, based on age, length of service, and weekly pay (up to the statutory limit). Some contracts may provide for enhanced redundancy pay.

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Why SMEs should get HR support

Redundancy law in the UK is complex. Mistakes – such as failing to consult properly or using unfair criteria – can result in unfair dismissal claims, which are costly and time-consuming. For SMEs, a tribunal can be financially and reputationally damaging.

Expert HR advice can help you:

• Follow the correct legal steps.
• Minimise the risk of tribunal claims.
• Support affected employees with dignity and care.

Redundancy is never easy, but it doesn’t have to become a legal or reputational nightmare. By following a fair and transparent process, consulting with staff, and seeking expert HR guidance, SMEs can navigate redundancies responsibly – protecting both the business and the people who have worked hard to make it succeed. Contact us to find out more.