Can I Make Someone Redundant If I Can’t Afford Them?

If your business is struggling financially, reducing staffing costs may seem like the obvious solution. You may have an employee whose salary is becoming difficult to sustain, and you may be asking whether redundancy is an option. Whether redundancy is appropriate will depend on the reason for the proposed dismissal and whether there is a genuine redundancy situation. Financial difficulties can create a legitimate need to reduce headcount, but redundancy is not simply a mechanism for replacing an expensive employee with a cheaper one. Our redundancy solicitors for employers advise businesses throughout the UK on redundancy planning, consultation, selection criteria, restructuring exercises, settlement agreements and wider employment law risks associated with workforce reductions. When Can an Employer Make Someone Redundant? Under UK law, redundancy is a specific statutory reason for dismissal. A redundancy situation may arise where: a business closes completely; a workplace closes; employees are no longer required to carry out work of a particular kind; or the employer’s need for employees to perform a particular type of work has diminished or is expected to diminish. Redundancy focuses on the employer’s operational requirements rather than any issue relating to a particular employee. For example, a business may employ five people carrying out broadly similar work. If work levels have fallen significantly and the business only requires four employees going forward, reducing the workforce from five employees to four could amount to a genuine redundancy situation. However, suppose the business still requires five employees to carry out exactly the same work, but one employee earns significantly more than the other four. If that employee is dismissed and replaced with someone carrying out the same role at a lower salary, there may not be a genuine redundancy situation. The key question is not whether the employer wishes to reduce salary costs. The key question is whether there is a genuine reduction in the employer’s need for employees to do that work. Can Financial Difficulties Be a Genuine Reason for Redundancy? Yes. A business does not need to be insolvent before redundancies become a legitimate option. Financial pressures can create a genuine need to reduce staffing levels where, for example: revenue has fallen; important contracts have been lost; customer demand has reduced; departments are being restructured; or cost reductions are necessary to maintain the business. Financial difficulties can therefore provide the commercial reason behind a redundancy exercise. However, financial pressure does not remove an employer’s obligation to follow a fair process. Employers should still consider whether redundancies can be avoided or reduced and whether there are alternatives available. Before making redundancies, employers should consider options such as: reduced overtime; recruitment freezes; redeployment; voluntary redundancy; changes to working arrangements; and suitable alternative employment. A rushed redundancy exercise simply because payroll costs are causing concern can create significant legal risk. What If I Can Afford the Role, But Not That Employee’s Salary? This is where employers need to proceed carefully. If the role continues to exist and the only issue is the amount the employee is paid, redundancy may not be the appropriate route. For example, an employee earning £60,000 may appear more expensive than someone who could potentially perform a similar role for £40,000. While replacing the employee could result in cost savings, that does not necessarily create a redundancy situation. If the work remains necessary and the business still requires someone to perform it, dismissing the employee purely because their salary is higher may be difficult to justify as a redundancy. In these circumstances, employers may wish to explore whether changes to contractual terms can be agreed with affected employees. However, variations to salary or other contractual terms should be approached carefully and legal advice may be appropriate before attempting to impose changes unilaterally. Seeking advice before making a decision is often significantly less expensive than defending an Employment Tribunal claim afterwards. What Does a Fair Redundancy Process Involve? Having a genuine redundancy situation is only part of the requirement. Employers must also follow a fair procedure. ACAS guidance emphasises the importance of genuine and meaningful consultation before any final decision is made. Employees should have the opportunity to understand the proposal, ask questions and suggest alternatives. Stage What the Employer Should Consider Identify the business need Establish why redundancies are being proposed and whether a genuine redundancy situation exists. Consider alternatives Explore ways of avoiding or reducing redundancies where possible. Consultation Explain the proposals and give employees a meaningful opportunity to respond. Selection Where selection is required, use fair and objective criteria. Alternative employment Consider whether suitable alternative roles are available. Final decision Confirm the outcome and provide the appropriate notice and payments. Appeal Consider allowing employees to challenge the decision.   Employers should actively consider whether suitable alternative vacancies exist before confirming redundancy. Offering suitable alternative employment may avoid redundancy altogether and forms an important part of a fair redundancy process. Throughout the process, consultation should remain a genuine process capable of influencing the outcome rather than a box-ticking exercise. Can I Choose the Highest-Paid Employee for Redundancy? Not automatically. While reducing payroll costs may be part of the reason for restructuring, simply selecting the highest-paid employee because they cost more can create legal risks. Where multiple employees perform similar work, employers may need to identify an appropriate selection pool and apply objective criteria. Selection criteria may include: skills and qualifications; experience; performance; attendance records; and disciplinary history. Employers should be able to explain why the criteria were selected and how they were applied. Employers should also ensure that any selection criteria do not directly or indirectly discriminate against employees with protected characteristics under the Equality Act 2010. Particular care may be needed when considering attendance records where absences relate to disability, pregnancy or other protected circumstances. What About Redundancy Pay? Employees who are genuinely made redundant may be entitled to statutory redundancy pay, provided they qualify under the relevant statutory rules. Generally, employees require at least two years’ continuous service to qualify for statutory redundancy pay. Employers should also consider: statutory notice pay; contractual notice entitlements; accrued but untaken holiday pay; and any contractual entitlement to enhanced redundancy payments. Businesses experiencing serious financial difficulties should be aware that assistance may be available from the Redundancy Payments Service in certain circumstances where statutory payments cannot be met. Redundancy should therefore never be viewed simply as a way of reducing employment costs. What If I Need to Make Several Employees Redundant? Additional legal obligations arise where larger-scale redundancies are proposed. Where an employer proposes 20 or more redundancies at one establishment within a 90-day period, collective consultation obligations may apply. Depending on the circumstances, consultation may need to take place with: recognised trade unions; or elected employee representatives. Failure to comply with collective consultation requirements can result in substantial financial penalties. From 6 April 2026, the maximum protective award increased from 90 days’ pay to 180 days’ pay per affected employee. For businesses already facing financial pressure, getting collective consultation wrong can significantly increase costs. Can Employees With Less Than Two Years’ Service Still Bring Claims? Yes. Employers sometimes assume that employees with less than two years’ service have no meaningful legal protection. That is not correct. While ordinary unfair dismissal claims generally require a qualifying period of service, employees may still bring claims relating to: discrimination; whistleblowing; family leave rights; trade union activities; and other forms of automatically unfair dismissal. Employers should therefore ensure that all redundancy exercises are conducted fairly and consistently regardless of an employee’s length of service. How KLG Law Can Help Employers With Redundancies Redundancies often arise at particularly difficult points in a business’s life cycle. Revenue may have fallen, important work may have been lost or a restructuring may be necessary to protect the future of the organisation. Legal obligations do not disappear simply because commercial pressure is increasing. Our employment redundancy lawyers advise employers on: redundancy planning; consultation procedures; selection pools and criteria; suitable alternative employment; settlement agreements; collective consultation requirements; and Employment Tribunal risk management. Obtaining legal advice before beginning a redundancy exercise can help businesses understand their options and minimise the risk of procedural mistakes that become expensive later. Final Thoughts So, can you make someone redundant if you cannot afford them? Possibly, but only if there is a genuine redundancy situation. Financial pressures can justify workforce reductions and restructuring. However, redundancy requires more than simply identifying an employee whose salary is higher than you would like it to be. Employers should ensure that: a genuine redundancy situation exists; alternatives have been considered; consultation is meaningful; any selection process is fair and objective; suitable alternative employment has been explored; and notice and redundancy payments are handled correctly. Redundancy is unlikely to be the appropriate reason for dismissal where the employer intends to replace an employee with another person performing substantially the same role at a lower salary. In those circumstances, there may be a significant risk of unfair dismissal claims. Where financial pressures are driving potential redundancies, obtaining advice early can help employers understand whether redundancy is genuinely available and how the process should be managed.