How to run a fair redundancy process: a guide for employers

Check that it is a genuine redundancy

Redundancy has a specific legal meaning. Under section 139 of the Employment Rights Act 1996, an employee is dismissed by reason of redundancy if the dismissal is wholly or mainly because the employer has stopped, or intends to stop, carrying on the business, or carrying it on at the place where the employee works, or because the business's need for employees to do work of a particular kind, or to do it at that place, has ceased or diminished or is expected to. A temporary reduction counts as well as a permanent one.

The legal test looks at whether the need for the work has ceased or diminished. If you will still need someone to do the same job, redundancy is not the right route, and treating the dismissal as a redundancy is likely to make it unfair. Concerns about performance or conduct belong in the proper procedure. The government's timeline also says that from January 2027, dismissing employees in order to replace them with people who are not employees, such as agency workers, to do substantially the same work will be automatically unfair in most cases, unless the need for that work has reduced or the employer meets a narrow exemption for financial difficulties.

Write down the business case at the start: what has changed, what the business needs now, which roles are affected and why. You will need that explanation for consultation, and a tribunal will expect to see it if the decision is challenged.

Look for ways to avoid compulsory redundancies

Take reasonable steps to avoid or reduce compulsory redundancies before dismissing anyone. Government guidance gives examples: asking for volunteers for redundancy or early retirement, inviting applications to work flexibly, ending the use of self-employed contractors, freelancers and casual labour, restricting recruitment, reducing or banning overtime, filling vacancies elsewhere in the business with existing employees, and short-time working or temporary lay-offs.

You can only lay employees off or put them on short-time working if their contract allows it, or in limited other cases such as a long-established practice or the employee's agreement. An employee who is laid off or kept on short-time working for four or more weeks in a row, or for six or more weeks in a 13-week period of which no more than three are in a row, can claim a redundancy payment if they give the required written notice. If you ask for volunteers, run a fair and transparent selection process and tell employees that volunteering does not mean they will automatically be selected. Voluntary redundancies still count when you work out whether collective consultation is needed. Early retirement has to be offered across the workforce rather than to chosen individuals, and cannot be forced on anyone.

Selection pools and criteria

Where the business needs fewer people doing a particular kind of work, identify the group of employees whose jobs are at risk, usually called the selection pool. Start with everyone doing the same or similar work and consider whether others whose work overlaps should be included. A pool of one can be appropriate where a role really is unique, but record why, because a tribunal will want to know why others doing similar work were left out.

Selection criteria should be objective, measurable and applied consistently, and you should be able to support every score with evidence. Government guidance gives skills, qualifications and aptitude, standard of work or performance, attendance, and disciplinary record as examples of fair criteria. Length of service, often called last in, first out, can be used only if you can justify it, and relying on it as the only criterion is likely to be age discrimination. Take care with attendance: counting absence connected with pregnancy or maternity leave, or disability-related absence without considering reasonable adjustments, can be discriminatory. Have more than one manager score where you can, and keep the scoring sheets.

Some reasons for selection are automatically unfair. Do not select anyone because of pregnancy or maternity; family leave such as parental, paternity or adoption leave or time off for dependants; acting as an employee or trade union representative; joining or not joining a trade union; being part-time or on a fixed-term contract; asserting rights about pay and working hours such as the minimum wage or holiday; or whistleblowing. Selection must not discriminate because of any protected characteristic.

Consulting the employees affected

Government guidance says that if you do not consult employees in a redundancy situation, any redundancies you make will almost certainly be unfair. That applies to a single redundancy as much as to a large programme, even though the formal collective consultation rules start at 20.

Start consulting before any decision is made, so that what employees say can still change the outcome. Warn the people at risk as early as you can, explain the business reasons, the proposed pool and the selection criteria, and meet each of them individually. Share their own scores and give them the chance to challenge them, ask for their suggestions for avoiding redundancy, discuss any alternative roles, and give them time to respond between meetings. Consultation does not have to end in agreement, but you need to consider genuinely what you are told and record your response to each point. Confirm a decision only when consultation has finished.

Consider allowing employees to bring a colleague or trade union representative to consultation meetings, and make reasonable adjustments so that disabled employees can take part fully. Keep a note of each meeting and send the employee a copy.

Collective consultation for 20 or more redundancies

If you are proposing to dismiss 20 or more employees as redundant at one establishment within a period of 90 days or less, the collective consultation rules in the Trade Union and Labour Relations (Consolidation) Act 1992 apply in addition to individual consultation. You must consult the appropriate representatives: representatives of a recognised trade union if there is one, and otherwise either existing employee representatives with authority to be consulted or representatives elected for the purpose. If employees do not elect representatives within a reasonable time after you invite them to, you must give the required information to each affected employee.

Consultation must begin in good time, and at least 30 days before the first dismissal takes effect, or at least 45 days where you propose to dismiss 100 or more. It must cover ways of avoiding the dismissals, reducing the numbers and mitigating the consequences, and it must be carried out with a view to reaching agreement. Give the representatives written information about the reasons for the proposals, the numbers and descriptions of employees you propose to dismiss, the total number of employees of that description, the proposed method of selection, how and over what period the dismissals will be carried out, how any non-statutory redundancy payments will be calculated, and the agency workers you use.

Separately, notify the Redundancy Payments Service by submitting form HR1 online before you give notice to any of the employees, and at least 30 days before the first dismissal, or 45 days where 100 or more are proposed. Failing to notify can lead to an unlimited fine. If you do not consult properly, a tribunal can make a protective award ordering you to pay each affected employee for a protected period. For dismissals taking effect on or after 6 April 2026 that period can be up to 180 days, double the previous limit of 90 days.

The government's timeline says that in 2027 collective consultation will also be triggered by proposals to dismiss a set number of employees across the whole business, rather than only at one establishment. The Employment Rights Act 2025 leaves that number to regulations and says it cannot be lower than 20. Until the change is brought into force, the one-establishment test applies.

Offering suitable alternative work

If you have selected someone for redundancy, you must try to find them suitable alternative work within the organisation. Look at current and expected vacancies across the business. For an offer to count, it should be unconditional and in writing, made before the current contract ends, show how the new job differs from the old one, and start within four weeks of the old job ending. The job has to be offered to the employee rather than them being asked to apply for it.

Some employees have priority. Employees who are pregnant, or on maternity leave, adoption leave or shared parental leave, must be offered a suitable alternative vacancy before other employees at risk, even if others are better suited to it. Employees returning from maternity leave, adoption leave or at least six continuous weeks of shared parental leave keep that priority until 18 months after the birth or adoption.

An employee who accepts an alternative role is entitled to a four-week trial period, or longer if agreed in writing, to see whether the job suits them. If you both agree that it does not, they keep their right to a redundancy payment. An employee who unreasonably refuses an offer of suitable alternative work may lose their entitlement to statutory redundancy pay.

Notice, redundancy pay and time off

When consultation is complete, confirm the redundancy in writing, explain how any payments have been calculated and give notice. Every employee with at least one month's service is entitled to at least statutory minimum notice: one week if they have less than two years' service, then one week for each complete year of service, up to 12 weeks. The contract may give more. You can end the employment earlier with a payment in lieu of notice if the contract allows it or the employee agrees.

Employees with at least two years' continuous service are entitled to statutory redundancy pay. It depends on their age, length of service and weekly pay, counting back from the date employment ends: half a week's pay for each full year worked while under 22, one week's pay for each full year worked from 22 to 40, and one and a half weeks' pay for each full year worked from 41 onwards. No more than 20 years count. For redundancies on or after 6 April 2026, a week's pay is capped at £751, so the maximum statutory redundancy payment is £22,530.

For example, say an employee is 46 when made redundant, started working for you on their 36th birthday and earns £900 a week. Their first five years of service came before their 41st birthday and count as one week each. The last five came after it and count as one and a half weeks each. That is 12.5 weeks, and because their pay is above the cap each week counts at £751, giving a statutory redundancy payment of £9,387.50.

Pay statutory redundancy pay when you dismiss the employee or soon after, and give them a written statement showing how it was worked out. If paying it would make the business insolvent, the Redundancy Payments Service may be able to help, but the money has to be repaid. An employee with two years' service who is under notice of redundancy is also entitled to reasonable time off during working hours to look for work or arrange training, and the statutory right to be paid for that time off is capped at 40% of a week's pay over the notice period.

How redundancy payments are taxed

Statutory redundancy pay is not taxed as earnings, but it counts towards the £30,000 that can be paid free of income tax in connection with the end of an employment. An enhanced redundancy payment made as compensation for losing the job through redundancy is treated in the same way, even where the contract provides for it. A payment that would have been made on leaving for any reason is different: it is taxed as earnings, whatever it is called.

Salary to the leaving date, holiday pay and bonuses are taxed and subject to National Insurance in the normal way. Pay in lieu of notice is taxed as earnings too, and where notice is not worked HMRC's formula for post-employment notice pay decides how much of the package is treated that way. If redundancy pay and other compensation for the loss of the job come to more than £30,000, income tax is due on the excess and the employer pays Class 1A National Insurance on it, at 15% for 2026/27, reported through payroll. The employee pays no National Insurance on that part.

Where redundancy processes go wrong

A genuine redundancy can still be found unfair because of the way it was handled. These are the errors to check for before any notice is given:

• deciding the outcome before consultation starts, or presenting the proposal as final;
• drawing a pool around the person you want to lose;
• using criteria that cannot be measured, or scores with no evidence behind them;
• not showing employees their scores or ignoring their challenges;
• overlooking vacancies, or the priority for employees on or returning from family leave;
• missing the collective consultation threshold because volunteers were not counted;
• giving notice before consultation has finished or before form HR1 has been submitted; and
• using redundancy to deal with a performance or conduct problem.

The cost of getting it wrong rises from 1 January 2027. Where the effective date of termination is on or after that date, employees need only six months' service to claim unfair dismissal and the compensatory award is no longer capped. If you want certainty, an enhanced package recorded in a settlement agreement can resolve potential claims, provided the employee takes independent advice. For dismissals on other grounds, see our guide on how to dismiss an employee fairly. We advise employers from the business case through consultation to the final letters, and agree the scope and cost of our work in writing before we start.

Frequently asked questions

Who is entitled to statutory redundancy pay?

Employees with at least two years' continuous service who are dismissed because of redundancy are normally entitled to statutory redundancy pay. It is not available to people who are workers but not employees, and an employee who unreasonably refuses an offer of suitable alternative work may lose it. Employees who are laid off or kept on short-time working for long enough can also claim it if they give the required written notice.

How much is statutory redundancy pay in 2026?

For redundancies on or after 6 April 2026, a week's pay is capped at £751 and the maximum statutory redundancy payment is £22,530. The employee receives half a week's pay for each full year worked while under 22, one week's pay for each full year from 22 to 40, and one and a half weeks' pay for each full year from 41, counting back from the date employment ends and up to a maximum of 20 years.

Do I have to consult if I am making only one person redundant?

Yes. The collective consultation rules apply only where 20 or more redundancies are proposed at one establishment within 90 days, but a fair process still needs individual consultation. Government guidance says that if you do not consult employees in a redundancy situation, any redundancies you make will almost certainly be unfair. Warn the employee early, explain the reasons, listen to their suggestions and consider alternative roles before deciding.

When does collective redundancy consultation apply?

Collective consultation applies when you propose to dismiss 20 or more employees as redundant at one establishment within 90 days or less. Consultation must start at least 30 days before the first dismissal, or 45 days if 100 or more are proposed, and you must also submit form HR1 to the Redundancy Payments Service. Voluntary redundancies count towards the 20, and changes due in 2027 will add a threshold based on numbers across the whole business.

Can I use last in, first out to select employees for redundancy?

Only if you can justify it. Government guidance says length of service can be used as a selection criterion, but relying on it as the only criterion is likely to be age discrimination, and it could be indirect discrimination if it affects one group more than another. A safer approach combines objective criteria such as skills, qualifications, standard of work, attendance and disciplinary record, scored consistently and backed by evidence.

Can an employee on maternity leave be made redundant?

Yes, if the redundancy is genuine and pregnancy or maternity leave plays no part in the selection, but extra protection applies. An employee on maternity leave must be offered any suitable alternative vacancy before other employees at risk, even if others are better suited, and an employee returning from maternity leave keeps that priority until 18 months after the birth. Selecting someone because of pregnancy or maternity is automatically unfair.

Is redundancy pay taxable?

Statutory redundancy pay, and enhanced redundancy pay that compensates for losing the job, is free of income tax up to £30,000 when added to other compensation for the end of the employment. Income tax is due on anything above £30,000, and the employer pays Class 1A National Insurance on that part at 15% for 2026/27. Pay in lieu of notice, holiday pay and salary are taxed in full as earnings, with National Insurance.

Sources & further reading

• GOV.UK — Making staff redundant: redundancy pay
• GOV.UK — Making staff redundant: redundancy consultations
• GOV.UK — Making staff redundant: avoiding redundancies
• GOV.UK — Making staff redundant: compulsory redundancy
• legislation.gov.uk — Employment Rights Act 1996, section 139
• legislation.gov.uk — Trade Union and Labour Relations (Consolidation) Act 1992, section 188
• legislation.gov.uk — The Employment Rights (Increase of Limits) Order 2026
• HMRC — EIM13760: statutory redundancy payments

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).