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How to make someone redundant in a small business

The redundancy process changes depending on the size of the business making redundancies and the number of employees being made redundant. To handle redundancies in small and micro-enterprises (SMEs) properly and to avoid unfair dismissal claims, read this guide and create a fair and consistent redundancy policy.

Last reviewed 21 October 2022.

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Redundancy is a type of fair dismissal. An employee is made redundant if they’re dismissed because they’re no longer needed. This may be because, for example: 

  • their role has become obsolete

  • fewer people are now needed to perform their role

  • the organisation they work for or part of their organisation is closing or moving locations

For more information, read Redundancy

Employment law requires employers to follow a fair procedure when making somebody redundant. If a fair procedure isn’t followed, any redundancies made are likely to constitute unfair dismissal if challenged (for which the employer may have to pay compensation).

Exactly what constitutes ‘fair procedure’ for an SME (eg a business with between 1 and 50 employees and turnover below £10 million) depends on the business’ circumstances. For example, how many people are being made redundant and the reasons why redundancies are being made. 

There are more concrete and stringent criteria for fair procedure (ie the collective consultation rules) if 20 or more people are made redundant within a 90-day period. This is very unlikely to apply to SMEs. 

The steps below form a general approach that SMEs should follow and tailor to their situation when considering making redundancies. If you need help following or tailoring the process, you can use our Redundancy advice service.

1. Consider alternative employment solutions 

Redundancy should be avoided if any alternative options are available to meet changing business needs. For example, a business could modify its workforce in response to decreased labour needs by encouraging moves to part-time working and discouraging overtime. Similarly, a business could react to changing customer demands by suggesting flexible working or by offering staff alternative roles within the business.

2. Initial selection and consultations

This step is likely to only be relevant to some SMEs, ie those in situations where multiple people could potentially be made redundant during the particular redundancy process being carried out (eg if more than one person performs the same role within the business). If multiple people could potentially be made redundant: 

  • it’s good practice to hold a meeting about potential redundancies early on. This helps meet the employer’s obligation to consult with employees about potential redundancies. Employees should be encouraged to ask questions during this meeting and afterwards (ie during an ongoing period of consultation)

  • staff who are to be at risk of redundancy should be carefully and fairly selected based on their job role and the reasons why redundancy is necessary. This is called redundancy pooling. Employers must take care not to discriminate during this process. At this stage, employers should also be careful not to apply criteria, or a single criterion, in a way that leads to a redundancy pool of one person. This would effectively select an individual for redundancy without giving them a chance to engage in meaningful consultation first (ie consultation in which the employee has a chance of influencing the outcome of the redundancy process). For more information, read Redundancy pooling and selection

If only one person is at risk of redundancy (eg because they are the only person who performs a role that has become obsolete), it is not necessary to hold a meeting about redundancies or to create a redundancy pool. It’s still important, however, to consult with this person to give them an opportunity to engage with the redundancy process.

3. Providing staff information

If an employer has created a redundancy pool because multiple people are at risk of redundancy, all employees within the pool must be informed that they are at risk of redundancy. Employers should send them an At-risk of redundancy letter. This letter does not need to be used when making just one employee redundant who is in a unique role.

When communicating this information, employers should consider including information about any alternative options to redundancy that may be offered.

4. Evaluate employees within a pool

If an employer has created a redundancy pool, they must use a fair method of selecting who will be made redundant. Selection criteria should be created or, if one exists, the business’ pre-existing criteria for selection should be used. The criteria may include, for example:

  • skills and experience and work performance standards

  • disciplinary and attendance records

  • efficiency

The chosen criteria must be applied fairly to all employees at risk of redundancy to identify who is, provisionally (ie depending on the outcome of consultations), to be made redundant. 

For more information, read Redundancy pooling and selection

5. Individual employee consultations

A key part of a fair procedure is the employer’s obligation to consult with individual employees about their risk of redundancy. This should be done before final decisions are made, although employers will usually evaluate employees before their consultations so that evaluation results can be discussed during the consultation. Employers may choose to consult both before and after evaluations. 

Each employee who is at risk of redundancy should be invited to an individual consultation meeting where they will discuss: 

  • potential redundancy

  • the employer’s redundancy selection process

  • the employee’s scores against the selection criteria, and

  • any alternative employment options

This applies to employees within a redundancy selection pool as well as employees who are the only person at risk of redundancy. Employers  should inform their staff about consultations using a Redundancy consultation letter.

6. Final decisions and redundancy notices

Once consultations are complete, employers must make final redundancy decisions. They must then inform selected staff that they are being made redundant. Best practice is to first inform the employee via a formal meeting and then confirm their redundancy in writing using a Dismissal for redundancy letter. Employers should also tell employees about their appeal options at this point.

7. Appeals

It is usually necessary as part of conducting a fair process to offer employees the option to appeal their selection for redundancy. This reduces the likelihood of employees making unfair dismissal claims to an Employment Tribunal

If an employee requests an appeal meeting, it should ideally be conducted by someone different from the person who conducted the consultation. If only one person is handling the redundancy process, as may often be the case within an SME, that person should be as impartial as possible during the appeal meeting.

Employers can make an Invitation to a redundancy appeal meeting letter to begin the process. For more information, read Appealing decisions made by employers.

Throughout the redundancy process, employers will collect data about employees who are at risk of redundancy that comes within the 'special categories of personal data' (ie sensitive personal data). 

Employers must ensure that this information is processed in accordance with their Data protection policies and Employee privacy notices, to help them comply with their obligations under data protection law (eg the UK General Data Protection Regulation (GDPR) and the Data Protection Act 2018). For more information, read Data protection and employees.

Just like in large businesses, employees who are dismissed on grounds of redundancy after at least 2 years of continuous employment are entitled to:

  • a statutory redundancy payment (SRP), calculated according to their pay, age, and length of service, and

  • time-off to look for new work or make arrangements for training

For more information, read Redundancy.

If you are facing redundancy or have recently been made redundant in Scotland, you can access help and support through Partnership Action for Continuous Employment (PACE). PACE is a Scottish initiative that helps and assists individuals and employers by offering advice and support regarding redundancy. To find out how to access PACE, visit Redundancy Scotland.

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