Managing redundancies: what is HR best practice?
The dreaded ‘R’ word is something HR managers, business leaders and employees all prefer to avoid. Nobody likes to deal with redundancy, but it’s likely to touch every HR professional at some point in their career.
When big organisations – such as British Steel and Jamie Oliver’s chain of restaurants – hit the headlines, we are reminded that redundancy is common. In fact, three out of every 1,000 employees have lost their jobs to redundancy since 1995, according to the Office for National Statistics.
This means it pays to understand the regulations and best-practice processes, whether your business is restructuring or flying.
For a quick way to get clued up for free, our webinar covers all the basics of managing a redundancy process, including an introduction to the law.
What is redundancy?
Redundancy is one of the five fair reasons for dismissal. It is appropriate only in select circumstances, including intended business closure, closing a particular workplace or a reduction of a particular kind of work.
In businesses that are not closing down, redundancy might be a viable option during a restructure, following a downturn or introduction of new technology. It may also be appropriate for businesses looking to save money by outsourcing work to agencies.
When is redundancy the right choice?
Redundancy should be a last resort. “You need to demonstrate that you’ve tried to avoid redundancies wherever possible,” explained Catherine Shacklady, HR Technical Consultant at AdviserPlus.
Before decisions are made, you might consider recruitment freezes, taking action to ring-fence vacant roles for employees whose roles are at risk.
Redundancy is not an appropriate way to manage poor performance – statutory payments apply and workers are legally entitled to a ‘fair process’, which is why it is so vital to administer redundancy by the book.
The Employment Rights Act covers this in detail, so you should familiarise yourself with the regulations before rolling out any significant changes. In layman’s terms, you should always be sure that your reduced need extends to the foreseeable future – if business picks up following redundancies, there are strict rules around recruitment.
Redundancy has many faces; store closures might help a retail chain to survive by freeing up resources so that it’s remaining outlets have a fighting chance. It can also help businesses to get ahead if they are struggling to compete in an increasingly digital era.
According to Catherine, “If you do need to embark on a redundancy process you need to ensure your business case is genuine and robust enough to withstand a challenge from those affected.”
It is important to keep the real, human impact of redundancy in your mind throughout the process. This can help you to strike communications right and anticipate the possibility of legal challenges.
The ‘People Process’: what is best practice?
Workers are entitled to a fair process when their employer opts for redundancy. This means there should be a consultation.
If you are proposing to dismiss 20 to 99 people, a minimum 30-day consultation timeframe is required. For 100 people or more, this rises to 45 days. You’ll need to notify the Redundancy Payments Service before collective consultation. If fewer than 20 people face dismissal, there is no set timeframe. However, you should avoid sudden action – meaningful consultations will take at least two full days.
Before the consultation even begins, you should also prepare the business case for redundancy and a comprehensive communications plan. Catherine Shacklady warns against rushing this step – even if things move fast.
“Although you need to communicate your plans whilst still at the formative stage, be mindful not to do this too early,” she says.
“A poorly written business case which can’t withstand challenge will only make people lose trust in the business, which can create risk.”
Catherine recommends creating a communications pack to include a timeline of events, lines of responsibility, communication documents and even scripts for meetings. This allows you to keep a tight lid on messaging.
Minimum redundancy pay regulations are set at half a week’s wage for each full year of employment up to the employee’s 22nd birthday and a week’s full pay thereafter. This rises to 1.5 times the weekly pay rate once workers pass their 41st birthday.
Weekly pay and length of service are capped, however – the maximum figure for statutory pay is £15,750. Importantly, when selecting workers for redundancy, you must ensure you do not discriminate on any characteristic protected by the Equality Act 2010 – including age.
Treat legal considerations with great care. Unfair dismissal, breach of contract and discrimination claims are just some of the potential pitfalls – organisations can also face prosecution for failing to inform and consult correctly.
Important things to consider
If your business is planning large-scale redundancies, it is important to consider the impact on your remaining employees. If the situation is not managed effectively, morale could sink through the floor – with potentially catastrophic results.
You might plan to save your most valuable employees, but if the process isn’t right, your business could experience a ‘brain drain’.
“The news of redundancies can cause a ripple effect of uncertainty throughout the business. Doubts about the security of their own roles will surface and you need to ensure they remain engaged and trust the business,” warns Catherine.
There are practical ways to mitigate this risk, however. If your business restructure is based in technological change, take some time to reduce the fear around this. Our HR Technology Trends 2019 eBook found that 68% of workers would welcome automation if it freed them up for more advanced work – so try to frame changes in a positive light.
Our HR and the Digital Revolution eBook also revealed that digital literacy was a significant hurdle the HR industry needs to overcome – but it isn’t a problem workers are resisting. More than 60% expressed an interest in E-learning to sharpen their skills, so one way to win back confidence is to invest heavily in developing your best talent.