Voluntary redundancy (sometimes known as non-compulsory redundancy) might to worth considering if your business is anticipating needing to reduce headcount. This guide sets out some of the details you might need when looking at whether voluntary redundancy might work for your business.
- What is voluntary redundancy?
- Why might you choose to offer voluntary redundancy?
- What is the best way to offer voluntary redundancy?
- What should I include in the voluntary redundancy offer?
- Do I have to agree to voluntary redundancy of an employee I don’t want to leave?
- What are pitfalls of voluntary redundancy to be aware of?
What is voluntary redundancy?
This is where you invite employees to self-select and apply for redundancy when you are looking to reduce headcount. This can reduce or eliminate the need for you to select employees for compulsory redundancy. If employees apply for redundancy and you accept, you will consult with those employees and come to an agreement to terminate those employees’ employment, and then review whether you need to continue with a compulsory redundancy process.
Why might you choose to offer voluntary redundancy?
Firstly, it is advisable to check your employee’s contract of employment and any other policies you may have around redundancy. If any of these mandate that a voluntary redundancy process must take place before a compulsory redundancy exercise, you will need to ensure that you invite employees to apply for voluntary redundancy first. Our employment lawyers can assist you with drafting a redundancy policy or with updating this.
If there is not a requirement for a voluntary redundancy exercise to take place first, you may still decide to offer voluntary redundancy, here are a few reasons why it may be a good idea:
- It will make the redundancy process easier as employees have already self-selected and so are on board with the idea of leaving the business and are working with you to achieve the same end goal. This may not be the case where compulsory redundancies are being carried out.
- The redundancy process is likely to be quicker as pooling, selection criteria and scoring are unlikely to be necessary, unless there are a significant number of volunteers. Another reason the voluntary redundancy process may be shorter is that there is less hostility and likely fewer questions relating to a shorter process, and some parts of the process could be reduced making consultation is less likely to be as time consuming. The savings in time and resources could be a real benefit if your business is already struggling to keep overheads down and productivity at a high level.
- As the employee is assisting you to reach the same end result, their dismissal on the grounds of redundancy, this means voluntary redundancies represent less ongoing liability or risk after and during the voluntary redundancy process than during a compulsory redundancy process.
- Choosing to only make those who wish to volunteer redundant, or at least attempting this strategy is likely to help with staff morale. This is because it will look as if you are making best efforts to avoid compulsory redundancies and the process being concluded quicker is likely to reduce pressure and uncertainty in the workplace sooner, for those employees that do not volunteer for redundancy.
What is the best way to offer voluntary redundancy?
- As with any process, clear communication throughout is key. Explaining what the situation is, why redundancies are required and what the alternative is, demonstrates honesty and this transparency will build trust with your staff. If staff do not feel like they are being kept in the dark, they are likely to feel less anxious and work more productively.
- Keep a written record of all informal and formal discussions and document anything agreed or still to be agreed regarding voluntary redundancy. This will ensure that there is a clear paper trail if anything is questioned about the process later and will remind you of what has been discussed, as you go through the process if this takes some time or involves various personnel within your business. This can help with consistency if more than one voluntary redundancy is being considered, too.
- Carefully contemplate what would incentivise employees to leave before presenting an offer to employees. Of course, this might mean an enhanced redundancy payment, particularly if otherwise the tax-free threshold of £30,000 will not be reached. However, this may not be purely financial, it might involve extension of benefits or retention of company property or telephone numbers, and perhaps release from some restrictive covenants or an agreed announcement or reference. These are likely to be at little financial cost to your business and are worth considering before offers are made, in case employees make these types of request.
- Once you have a coherent strategy and have made relevant managers and any HR personnel in your business aware of this, employees who have expressed an interest in volunteering for redundancy should be given a voluntary redundancy letter explaining the process and redundancy package.
- If you have considered that voluntary redundancy is something that you would like to try, the right to apply should be offered as an option to all staff who have roles at risk of redundancy, as a minimum. You could offer the option of voluntary redundancy to the entire company if losing staff from other departments will end the need for further measures.
- Whilst the consultation process is less likely to be as involved in a voluntary redundancy process than in a compulsory redundancy process, there is still a requirement for employees to be consulted and made aware of what they are agreeing to. You will want to be cautious not to push an employee into voluntary redundancy to avoid a claim for constructive unfair dismissal. If you would like guidance on this, it is advisable to seek specialist legal advice before making an offer to an employee. If you are thinking of concluding a settlement agreement at the end of the process, the employee will be required to be independently advised by their own lawyer in order for the settlement agreement to be valid, which will help to protect your business from future claims.
- If an employee is successful in their application for voluntary redundancy, make this clear in writing. Also note that you will need to allow an employee being made voluntarily redundant, the same rights that they would have had if being made compulsorily redundant in respect of paid and unpaid time off to find new work. Further details of these rights can be found here.
What should I include in the voluntary redundancy offer?
There will be several items you will be required to include as well as extras you may choose to negotiate individually with staff or offer to all volunteers as an incentive to accept voluntary redundancy at an early stage. You will have to ensure that you pay:
- Statutory entitlements including minimum notice period, accrued and untaken holiday pay to the employee’s end date of employment and statutory redundancy pay if the employee qualifies for this.
- Contractual entitlements including salary and benefits to the employees end date of employment, any enhanced notice pay and any enhanced entitlements to redundancy pay in an employee’s contract of employment and any other contractual benefits.
- Enhanced financial benefits for volunteering for redundancy will need to be offered to incentivise employees to volunteer and allow for a reduced redundancy process. The extent of the financial incentive will be a matter for your business, our experts can assist with negotiating on your behalf.
In addition, it is likely that you will want to include additional discretionary contractual benefits such as a bonus or commission to encourage employees to leave sooner. If employees are likely to lose out on these items by leaving earlier, it is more likely the employee would wait to see if they are not made compulsorily redundant and can retain these payments, they would not look to expedite the redundancy process in these circumstances.
Having an open mind, being creative and considering suggestions of volunteers but being aware of what the business is not able or prepared to agree, is advisable.
Do I have to agree to voluntary redundancy of an employee I don’t want to leave?
The short answer to this is no, you do not have to accept offers from employees to take up voluntary redundancy if they are business critical. In order to ensure there are not liabilities attached to a refusal to make an employee voluntarily redundant there will need to be a justifiable business reason. Evidence of why an employee is critical to the future of the business is helpful.
To avoid future conflict on this issue it is advisable to make clear to employees when you first invite them to apply for voluntary redundancy that you can reject their applications, and what process will be followed to decide which applications will and will not be accepted, if there are too many applicants.
As with a compulsory redundancy process, if you are selecting which applications will and will not be accepted you must make a fair and objective assessment based on objective criteria such as role, skills, attendance and disciplinary record and ensure that you are not being discriminatory in the criteria you use and the application of those criteria. Keep clear, written records, especially if you are not accepting all applicants for voluntary redundancy, which then leads to compulsory redundancies being needed.
In the same way as you not being required to accept all applicants for voluntary redundancy, the employee may decline to accept the settlement offered for voluntary redundancy, even if they initially applied and their application was accepted. The employee’s circumstances may have changed, or they may feel that the offer is not sufficient to allow them to continue with the process. This should be accepted, and the process continued with other volunteers, if there are any, or a different offer made to the employee to see if they will reconsider voluntary redundancy.
What are pitfalls of voluntary redundancy to be aware of?
Whilst on the surface voluntary redundancy may appear to be a straight-forward and low risk option, this does not mean that there is no risk associated with that process. Just because people are prepared to apply for voluntary redundancy does not mean that redundancies should be made if they can be avoided and so even before a voluntary redundancy process, attempts to avoid redundancies should be made first.
One drawback of voluntary redundancy is that it may lull you and other staff into a false sense of security that once this faster process is completed, that there will be no further redundancies required. This may not however be the case, and you may still be required to make compulsory redundancies too, which could lead to lower morale and more wasted time and resources than if there was not a voluntary redundancy process.
Similarly, you may end up with a long process akin to one of a compulsory redundancy process if there are too many applicants or too many applicants with the same skills and experience. This can lead to upset and demotivation for those that want to be selected for voluntary redundancy and you and they will be acutely aware that these employees want to leave, which may have an ongoing, damaging impact on the future working relationship.
Whilst voluntary redundancy is worth consideration to reduce headcount, as it may reduce or eliminate the need for compulsory redundancies, you should ensure that you give due consideration to what you are trying to achieve and how and what you intend to offer and what cannot be offered by your business before inviting employees to apply for voluntary redundancies. If you would like assistance with voluntary redundancies, our expert employment lawyers can advise you, whichever stage of the process you are at.