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Managing voluntary redundancy in a small business
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  3. Managing voluntary redundancy in a small business

Redundancy processes are often an upsetting and difficult time for small businesses, and it can make it a lot easier for you as an employer when a staff member volunteers to take redundancy. But, what’s the process for voluntary redundancy and when might it occur?

When might you need to consider redundancy?

It could be that your business has run into some financial hot water, you need to reduce your costs and you think that your wage bill is too large as a percentage of your revenue. Or perhaps you’re suffering from staff inefficiency or ineffectiveness and you have the wrong skillsets in important positions.

In our experience, redundancies in small businesses usually happen for two reasons:

1.    Cost saving. Fluctuations in the market, financial and cash flow problems can drive employers to look at ways to reduce their overheads, and employees are normally one of the biggest costs to a business.

2.    Restructure. With growth (especially rapid grown) there is normally a point in time where the organic structure of a company is no longer fit for purpose. This will not always mean reducing the number of employees, but it may be redeployment to other roles internally to meet the needs of the business, or making certain roles redundant and replacing them with different skills and experience.

What is voluntary redundancy?

During the redundancy consultation process, you can give your staff the option to volunteer to take redundancy. This should be offered to all staff that are at risk of redundancy, and in some cases, this may be something you want to offer to your entire company.

You may think that it’s better to offer voluntary redundancy to older, or longer serving staff. However, this could lead to a discrimination claim, so it’s always advisable to offer voluntary redundancy to all of the affected roles regardless of age or length of service, (or any other characteristic protected by equality law, such as gender or disability).

Should someone volunteer, they will be offering to terminate their employment contract with you, but they will still be classed as having been made redundant, rather than quitting, so they should be treated as such, and will be entitled to redundancy pay (if eligible), and their notice period.

What redundancy pay and notice should be offered for voluntary redundancy?

Redundancy pay and notice for voluntary redundancy legally works in the same way as normal redundancy. The affected staff members are entitled to statutory redundancy and the notice in their employment contract as a minimum. It’s fairly commonplace (and above aboard),  however, for businesses to offer enhanced payments and packages, over and above the statutory entitlement, to incentivise staff to take the redundancy.

Statutory redundancy pay is paid at the following rates for those that have 2 years’ continuous service, and have not opted for early retirement instead:

  • 1.5 weeks’ pay for each year of employment after their 41st birthday
  • a week’s pay for each year of employment after their 22nd birthday
  • half a week’s pay for each year of employment up to their 22nd birthday

Remember though, there is a cap of 20 years’ service, weekly pay cannot exceed £479, and the max statutory redundancy is £14,370.

What if multiple people apply for voluntary redundancy?

This is when you would apply selection criteria (as covered in our redundancy consultation blog), in order to fairly decide who is more or less important to your business, or more suitable for the remaining roles. It’s important to be fair here, as there is always a risk of discrimination when accepting or refusing voluntary redundancy.

Can you refuse voluntary redundancy to someone who offers to take it?

Yes. You can refuse someone who volunteers to be made redundant. This might be the case if they are a ‘business critical’ employee, for example, someone with specialist skills that only they have, or if they would be difficult to replace. In the same way that you must have a business case for dismissing someone using redundancy, you would have to have a business case for the person you want to keep.

Personal feelings and friendships must not come into it.

Get HR Support

If you need any advice on the subject of voluntary redundancy within your business, our HR consultants can help.

Get in touch on info@citrushr.com or give us a call on 0333 444 0165 to find out more about how we can help your business with friendly, expert HR support.

The content of this blog is for general information only. Please don’t rely on it as legal or other professional advice as that is not what we intend. You can find more detail on this in our Terms of Website Use. If you require professional advice, please get in touch.

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