Redundancy step by step for a small employer
Is it really redundancy, the pool, selection criteria, individual and collective consultation, alternative roles, notice, statutory redundancy pay, and the protections for pregnancy and family leave.
Reviewed September 2026. Guidance, not legal advice: employment law moves, so check the current position before relying on any of it.
Redundancy is the one dismissal where the reason is the job, not the person, and the law tests it on exactly that: was the job really going, was the person chosen fairly, and were they consulted before it was decided. A small employer who takes three or four weeks to do it properly is in a strong position. One who announces the decision on a Friday is not.
This guide walks the process in order, with the letters that go at each step, the collective consultation trigger, the redundancy pay calculation, and the two groups who have priority for alternative roles.
Is it redundancy?
Redundancy has a statutory definition: the business, or the place where the employee works, is closing; or the requirement for employees to do work of a particular kind has ceased or diminished, or is expected to. A lost contract, a closed site, a change in how the work is done so fewer people are needed: all redundancy. "He is not very good" is not, and using redundancy to remove a poor performer is unfair dismissal dressed up. Write the business reason down in two sentences before you do anything else; if you cannot, stop.
Before you start: alternatives and volunteers
Consider, and record that you considered, the alternatives: natural wastage, a recruitment freeze, ending agency and overtime, reduced hours or short-time working by agreement, redeployment, voluntary redundancy. Asking for volunteers often solves the problem. You can decline a volunteer whose skills you cannot lose; say so when you ask.
The pool
The pool is the group of employees from whom the redundant roles will be selected. It should include everyone doing the kind of work that is diminishing, and usually everyone whose role is interchangeable with it. A pool of one, where three people do the same job, is the commonest way a redundancy becomes unfair. The pool is a judgement, but it must be a reasoned one, and it should be shared at the start of consultation so the employees can argue about it.
Selection criteria
Objective, measurable, applied consistently, and ideally scored by two people independently: skills and qualifications relevant to the remaining work, performance evidenced by appraisals, disciplinary record (live warnings only), attendance (excluding pregnancy, disability-related and family leave absence). Not "attitude", not "flexibility" without definition, not length of service alone (age discrimination). Share the draft criteria with the pool before finalising them, and share each person's own scores before the meeting where they are discussed.
Individual consultation
For fewer than 20 redundancies there is no fixed period, but consultation must be genuine: it starts before decisions are made, gives the employee enough information and time to respond, and their response is considered. In practice that means an at-risk letter, a first meeting to explain and listen, a second meeting to share scores and alternatives, and a final meeting before any notice, over two to four weeks. Each meeting has a letter before and notes after. Allow a companion.
Collective consultation: 20 or more
If you propose 20 or more redundancies at one establishment within 90 days, you must consult appropriate representatives (a recognised union, or elected employee representatives, whom you must arrange the election of) with a view to reaching agreement, beginning at least 30 days before the first dismissal takes effect (45 days for 100 or more), and you must notify the Insolvency Service on form HR1 by the same deadlines. Failure to consult collectively carries a protective award of up to 90 days' pay per affected employee, and failure to file HR1 is a criminal offence. Count carefully: a rolling programme of small redundancies at one site can cross 20 without anyone noticing.
Alternative employment
Throughout the process and the notice period, look for suitable alternative roles and offer them. An employee who accepts one has a statutory four-week trial period; if it does not work out, the redundancy stands. An employee who unreasonably refuses a suitable offer loses the statutory redundancy payment; both "suitable" and "unreasonable" are judged on the specifics and are often argued. Employees who are pregnant, on maternity, adoption or shared parental leave, or within 18 months of birth, have priority for any suitable vacancy without competition.
Notice and pay
The dismissal letter gives notice (contractual or statutory, whichever is longer) or pay in lieu where the contract allows. Employees under notice with two years' service are entitled to reasonable paid time off to look for work or arrange training. Statutory redundancy pay is due to employees with two or more years' continuous service: half a week's pay for each complete year aged under 22, one week for each year aged 22 to 40, one and a half weeks for each year aged 41 or over, up to 20 years, with a week's pay capped at the statutory maximum that changes each April. The payment is tax-free; notice pay and holiday pay are taxed as earnings. Show the working in the letter.
The appeal, and after
Offer an appeal, heard by someone not involved in the selection. Provide a reference on request. Tell the remaining team what has happened and why, once the individuals have been told. Then look at whether the reasons you wrote down at the start have actually been dealt with, because a second round six months later is harder to defend than the first.
The checklist
- Business reason written in two sentences; alternatives considered and recorded; volunteers invited.
- Pool defined and reasoned; draft criteria objective and shared.
- Count: 20 or more at one establishment in 90 days triggers collective consultation and HR1.
- At-risk letter; two or three consultation meetings over two to four weeks, each with a letter and notes.
- Scores shared with each individual before discussion; comments considered.
- Alternative roles searched and offered; family-leave priority applied; four-week trial offered.
- Notice letter with the reasoning, the notice, the redundancy pay calculation shown, the appeal.
- Time off to look for work; reference; team told.
What the law says
- Employment Rights Act 1996 s.139 (definition), s.98(4) (fairness), ss.135 to 165 (redundancy payments), s.52 (time off), s.138 (trial period), s.141 (refusal of suitable employment).
- Trade Union and Labour Relations (Consolidation) Act 1992 ss.188 to 198: collective consultation, HR1 and protective awards.
- Protection from Redundancy (Pregnancy and Family Leave) Act 2023 and the Maternity Leave, Adoption Leave and Shared Parental Leave (Amendment) Regulations 2024.
- Williams v Compair Maxam [1982] and Polkey v A E Dayton Services [1987]: the standards of a fair redundancy.
Questions people ask
Can I make one person redundant without a pool?
If they genuinely are the only person doing that kind of work, the pool is one. If others do the same or interchangeable work, a pool of one is very likely unfair. The question a tribunal asks is whether a reasonable employer could have chosen that pool.
Does redundancy pay apply to someone with 18 months' service?
Statutory redundancy pay needs two complete years. They still get notice, holiday pay and a fair process, and any contractual redundancy pay your policy promises.
Can I re-recruit for the role a few months later?
If the need genuinely returned, yes, and offering the role to the redundant employee first is both decent and evidentially wise. If it looks like the need never went away, the original dismissal was not redundancy.
Is the redundancy payment taxable?
Statutory redundancy pay is tax-free, and the first £30,000 of a redundancy package including any enhanced payment is tax-free. Notice pay, whether worked or in lieu, and holiday pay are earnings and taxed as normal.
The admin this guide describes, done for you
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