How to Make Someone Redundant in a Small Business

Making an employee redundant is one of the more difficult decisions a small business owner can face. When money is tight, a role is no longer needed, or the business has changed direction, reducing your workforce may be necessary. But redundancy is not simply a case of telling someone that you can no longer afford to employ them. There is a legal process to follow. For a small business, this can feel particularly daunting because there may not be an HR department or an internal employment lawyer to guide you through it. You may be dealing with the employee directly, while also trying to keep the business running. The good news is that the process does not have to be unnecessarily complicated. What matters is understanding when redundancy is appropriate, consulting properly, making fair decisions and getting the paperwork right. At KLG Law, our redundancy lawyers for employers advise small businesses on redundancy situations from the initial planning stage through to consultation, dismissal, redundancy pay and appeals. Getting advice before you start can help prevent mistakes that become much harder and more expensive to fix later. When Can a Small Business Make Someone Redundant? Redundancy is a specific type of dismissal. It generally applies where an employee’s role is no longer needed because the business is closing, the business is changing the number or type of roles it needs, or the workplace is moving. It is not the correct process simply because you are unhappy with someone’s performance or conduct. Those situations may need to be dealt with through a disciplinary or capability procedure instead. Acas makes the distinction clear: redundancy is generally appropriate where a role is no longer needed, whereas conduct or performance concerns should be dealt with through the relevant employment procedure.  Financial pressure can certainly be a genuine reason for redundancy. A reduction in sales, loss of a major contract or a need to reduce operating costs may mean that a business genuinely needs fewer employees. The important question is whether there is a genuine business reason for reducing the role or workforce, rather than using redundancy as a convenient way of dismissing a particular employee. What Should You Do Before Starting a Redundancy Process? Before speaking to the employee, take a step back and establish exactly why the redundancy is necessary. Look at the business position and the work that needs to be done in the future. Is there genuinely less work? Has a particular service or department been closed? Does the business need fewer employees? Are there other ways of reducing costs without making someone redundant? Acas recommends considering alternatives before proceeding with redundancies. Depending on the circumstances, these could include voluntary redundancy, reducing overtime, changing working arrangements, redeployment or not replacing employees who leave.  This stage is particularly important for a small business because decisions are often closely connected to cash flow. If the business is under financial pressure, keep appropriate records showing the reasons for the proposed change. You may need to explain the position during consultation. Do You Have to Consult the Employee? Yes. Even where only one employee is being considered for redundancy, you should not simply make the decision and then inform them that their employment is ending. Consultation should be genuine and meaningful. You should explain why redundancy is being considered, listen to the employee’s response and consider any suggestions they make for avoiding or reducing the redundancy. Acas guidance confirms that there are no fixed statutory rules for how long individual consultation must last, but the consultation must be meaningful.  For a small business, the consultation process may be relatively straightforward, particularly where only one role is affected. That does not mean it should be rushed. The employee should have a genuine opportunity to respond before a final decision is made. How Should a Small Business Consultation Work? There is no need to make the process unnecessarily formal, but it should be organised and properly documented. A typical process might look like this: Stage What You Should Do Initial meeting Explain that the employee’s role is at risk of redundancy and why. Consultation Discuss the proposed changes and listen to the employee’s views. Alternatives Consider whether redundancy can be avoided through another solution. Selection If more than one employee is doing similar work, consider a fair selection process. Further meeting Discuss any remaining concerns and explain what happens next. Decision Only make the final redundancy decision after meaningful consultation. Written outcome Confirm the decision, notice period, redundancy pay and appeal rights in writing. There may be more than one consultation meeting depending on the circumstances. The key point is that the employer should not simply treat consultation as a formality after the decision has already been made. What If Several Employees Do the Same Job? This is where the process can become more complicated. If you need to reduce a team rather than remove an entire role, you will normally need to think about which employees should be placed in the selection pool and how the selection will be made. You should use fair and objective criteria. Depending on the business, these might include skills, qualifications, experience, performance or other relevant factors. Choosing someone because they are older, pregnant, disabled, on maternity leave or because they have raised a complaint can create serious discrimination or automatically unfair dismissal risks. Acas guidance states that employees should be selected fairly and that selection criteria should not discriminate. This is one area where a redundancy solicitor can be particularly useful. A small business owner may know exactly which employee they would prefer to lose, but that does not necessarily mean the law allows them to select that person without a fair process. Do You Need to Offer Another Job? You should consider whether there is suitable alternative employment within the business. If there is another suitable vacancy, it may need to be offered to an employee at risk of redundancy rather than simply ending their employment. Acas states that employers must try to move employees selected for redundancy into suitable alternative roles where available.  This does not mean every vacancy will automatically be suitable. The role, pay, location, duties and other circumstances need to be considered. There are also special rules around suitable alternative employment for employees who are pregnant or on certain types of family leave. What Notice and Redundancy Pay Must You Give? Once consultation and selection have finished and a final redundancy decision has been made, the employee should receive written confirmation. This should explain the decision, their leaving date, notice entitlement, redundancy payment and appeal arrangements. Acas confirms that statutory notice periods apply as a minimum, although the employment contract may provide for a longer period.  An employee may also qualify for statutory redundancy pay if they have at least two years’ continuous employment and meet the other eligibility requirements. The amount is calculated according to age, length of service and the statutory weekly pay rules.  The employee may also be owed salary and accrued holiday pay. Payment What to Check Notice pay Check the contractual and statutory notice periods. Statutory redundancy pay Generally available to eligible employees with at least two years’ continuous service. Accrued holiday Pay any outstanding holiday entitlement due at termination. Contractual benefits Check whether other contractual payments or benefits are due. If your business is struggling financially, these costs should be calculated before the redundancy process begins so that you understand the financial impact. What About Small Businesses Making Fewer Than 20 People Redundant? Small businesses often assume that because they are making only one or two people redundant, there are no formal rules. That is not correct. The special collective consultation rules generally apply where an employer proposes 20 or more redundancies at one establishment within a 90-day period. Where fewer than 20 redundancies are proposed, there are no statutory collective consultation rules in the same way, but employers should still carry out fair individual consultation.  For a small employer making one employee redundant, the focus will normally be on whether there is a genuine redundancy situation, whether the employee was consulted properly, whether any selection was fair and whether the correct payments and notice were provided. Can You Make Someone Redundant Without a Solicitor? There is no general requirement for an employer to instruct a solicitor to make an employee redundant. However, that does not mean legal advice is unnecessary. Redundancy law can become complicated very quickly, particularly where the employee has raised a grievance, is pregnant, has a disability, has made a whistleblowing complaint, has less than two years’ service but may have an automatically unfair dismissal claim, or where there are contractual complications. A redundancy lawyer for employers can review the proposed process before you begin. That can be far more cost-effective than defending an Employment Tribunal claim after the dismissal. Why Small Businesses Choose KLG Law for Redundancy Advice At KLG Law, we understand that redundancy decisions can be difficult for small business owners. You may not have a dedicated HR team, and you may need a clear answer rather than pages of complicated legal terminology. Our employment solicitors provide practical redundancy legal advice for businesses, helping employers understand their options before taking action. We can advise on whether redundancy is appropriate, consultation, selection criteria, redundancy pay, settlement agreements and the risks associated with the proposed process. We can also support employers where the situation becomes contentious, including grievances, settlement negotiations and Employment Tribunal claims. The earlier you take advice, the more options you generally have. If you are considering making an employee redundant, speaking to a solicitor for redundancy before starting the process can help you approach the situation properly from the beginning.