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The SME guide to redundancy: rights, pay and process

For smaller companies, making someone redundant – for whatever reason – is always hard. Legal issues can make it even more fraught but you can reduce the risks.

When it comes to assessing whether to make someone redundant, a manager or business owner must first assess whether there is a genuine need for fewer employees within your business. If you are perceived to act in a discriminatory way, such as selecting someone for redundancy on the basis of age, race, sex or one of the other protected characteristics in the Equality Act 2010, you could face a claim for discrimination.

“Get it wrong and there is a risk of an employment tribunal claim for unfair dismissal,” explains principal associate at Wragge Lawrence Graham & Co LLP Jemma O’Reilly.

Redundancy rights

What exactly does a fair selection process entail? Firstly you have to decide on your pool for selection: those carrying out similar work, those working in particular departments or those whose work has ceased or is expected to. Then you need to identify and apply a fair and objective selection criteria: including disciplinary record, length of service, skills, experience and qualifications.

You must begin the consultation process. If less than 20 employees are involved you can do this individually by calling a meeting with the employee, where you explain the situation and listen to their feedback.

“Consider all reasonable suggestions from the employee and set up at least one further meeting until all options and alternatives have been considered,” O’Reilly advises. “Ensure that you consider whether there is any alternative employment available all though note there is no obligation to create a job for the employee.”

Redundancy process

You will then need to communicate your decision in writing to the employee along with details of their redundancy pay (the government has a redundancy calculator for statutory redundancy pay). You will also need to allow the employee to appeal to a senior, independent manager. Further advice is available at the ACAS step-by-step guide.

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