Navigating Redundancies in the Midst of Rising Employment Costs

This year, the total cost of employing a full-time worker on the minimum wage will increase by £2,367. This is due to the rises in the national minimum wage (NMW) and employers’ National Insurance (NI) contributions.

This may leave many employers and employees wondering if redundancies can be implemented to cut costs.

Understanding Redundancy

Under the Employment Rights Act 1996, redundancy is defined as a situation where there is a diminished business requirement “for employees to carry out work of a particular kind”. This can occur in several ways, including:

1. Reduced Workload: If there is less of a particular kind of work, fewer staff are needed. This might happen if certain tasks are automated or abolished.
2. Efficiency Improvements: Even if the amount of work remains the same, fewer staff may be needed due to role amalgamation or overstaffing.

The statutory definition does not require that there must be less work for employees to do. Provided that redundancy is the reason for the employee’s dismissal, a genuine need to reduce headcount to cut costs in response to higher outgoings can satisfy the definition of redundancy.

Fair Redundancy Procedure

In any event, a fair redundancy procedure is essential. To ensure the redundancy process is fair, you must follow these steps:

1. Engage in discussions with employees or their representatives.
2. Use objective criteria to fairly select employees for redundancy.
3. Consider alternative employment and other roles within the organisation that the affected employees could fill.

Avoiding Unfair Dismissal

It is crucial not to select employees for redundancy based on solely their eligibility for the NMW or a particular NMW rate, as this would constitute an automatically unfair dismissal.

Instead, redundancies should be made across the workforce using fair and objective selection criteria. This approach demonstrates that the reason for the redundancies is a genuine business need to cut costs, rather than targeting employees based on their wage rate.

By adhering to these guidelines, you can manage redundancies in a way that is both legally compliant and fair to your employees.

For more information on the NI and NMW increases, read our article “How the Autumn 2024 Budget Impacts Employment”.

For more help and guidance related to Employment Law, please call our Employment Law Team on 01206 239 761.