Voluntary redundancy: How it works in practice

Voluntary redundancy is the process of an employee choosing to take redundancy. This is meant to terminate employment in exchange for some kind of redundancy payout.

While employees can negotiate the terms of their voluntary redundancy packages, the employee can’t actually refuse redundancy.

The voluntary redundancy process hinges on a few key factors. First, it is absolutely critical to make sure the selection process you use to invite people is clear and fair.

Additionally, it’s very important to let employees know that just because they’ve volunteered, doesn’t mean they will automatically be selected.

For example: If an employee who volunteers for redundancy has a business-critical role. In this case, it’s entirely possible that the business could decide to keep them.

It’s also worth noting that gov.uk suggests an alternative way of reducing staff overheads, without making them redundant: That is to ask employees to take early retirement instead.

The biggest reason for a company to offer voluntary redundancies comes down to cutting down on costs.

That said, there can also be other reasons for making redundancies. This can include:

Generally, offering voluntary redundancy can also be less painful for all involved. It can be empowering, giving employees the choice to control their future.

Some employees may actually prefer to take redundancy for varied reasons, including:

• Relishing the opportunity to change jobs

• Using the payout to start their own business

• Changing their life-role e.g. to be a full-time parent

• Capitalizing on already wanting to leave

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Voluntary redundancy may be able to dull what is otherwise a painful process, but it comes with its own set of disadvantages. In fact, while employees get to decide who stays and who goes, seeing which volunteers volunteer may lead to a nasty surprise.

Concerned about attrition in your organization? Click here to read our guide.

You may also risk losing more staff than desired, even if you have the choice. Forcing employees to remain may be damaging to morale, especially when you know that they would potentially be open to leaving entirely.

For this reason, it is often wise to prepare a scoring framework. This could ultimately help businesses choose who to accept, if multiple people volunteer for redundancy.

When putting a framework to identify who would be suitable for voluntary redundancy you might choose to include factors like:

• How will it impact the business as a whole if they leave?

• Will we have enough people remaining to do this job, or in this department, if this person leaves?

• Can we rely on people who are more junior or senior to take on this role’s responsibilities if they go?

• Would it be better to keep this person, now that we know they want to go, or to accept their desire to be made redundant?

• Can we afford to pay for their redundancy? (In the case of employees who have been with the company for a long time, redundancy can sometimes be the equivalent of months or even years’ worth of pay!)

Remember: A person’s role is made redundant, not the person themselves! You can’t make someone redundant (even if they volunteer) and then immediately employ someone else to do the same role.

Employees have the same legal rights, regardless of whether they volunteer for redundancy or are selected. As we covered in this blog post on what employers need to know about redundancy pay:

• There are statutory redundancy pay periods and minimum payment amounts:

  • If an employee has been working for your company for two years or more, continuously, they will be entitled to statutory redundancy pay.

  • Once they have worked as an employee for more than two years and are under the age of 22, they must receive half a week’s pay for each full year. If they are between 22 and 41 years old they receive one week’s pay. Over the age of 41, they receive 1.5 weeks of pay.

• There is a difference between redundancy and severance pay (severance pay is generally higher).

• Redundancy pay isn’t always mandatory. However, voluntary redundancy payment is required and must meet the statutory requirements, at a minimum.

• Employees also have certain rights during redundancy notice periods, including the right to take a reasonable amount of time off work to look for a new job or arrange training.

• They also have the right to receive a written explanation of how you calculated their redundancy pay.

• The first £30,000.00 of redundancy pay is free from tax and National Insurance payments.

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Always follow the stipulated redundancy processes and guidelines set out by law.

Additionally, employers should also be careful to take steps to avoid any signs of unfair redundancy. So, err on the side of caution and over-explain the decision-making process to employees.

Be aware that selecting employees or preventing them from taking voluntary redundancy based on their gender, age, disability, or other protected characteristics could be considered discrimination.

So, to avoid any claims of unfair dismissal (and because it’s the right thing to do), be fair and objective.

Voluntary redundancy should be calculated using the standard government formulae. You can use the gov.uk statutory redundancy pay calculator to work out how much to pay them.

Alternatively, as we explain in our blog post on severance pay in the UK, it’s also possible to pay employees more than the statutory requirements – as the statutory amount is simply a minimum value.

For example, employees’ voluntary redundancy pay may be increased in the following (or other) circumstances:

• When the company is being generous

• When employees negotiate a higher offer

• When other factors (such as leave, shares, or bonuses) are considered as part of their voluntary redundancy package

Voluntary redundancy must follow the same process as normal redundancies. The processes are quite clearly laid out by gov.uk in their information about making staff redundant. If you follow these processes, in a voluntary circumstance, you’ll be fine.

It’s worth paying particular notice to:

• Redundancy consultations (click here for our full guide)

• The importance of giving staff notice and

• What happens when you’re dealing with large-scale or collective redundancies. (This ACAS booklet is very helpful on the subject).

Whatever processes you do follow, though, be sure to document every stage, every letter, every meeting, and every note.

Fortunately, there are HR experts who deal with documentation every single day and can make it easy to keep track of all HR-related processes and procedures.

Learn more about employee document management with Personio by clicking this link.

You might also find it valuable to check out the other articles that Personio has written on redundancy and related subjects, including:

• Employment Law in the UK: An Overview for HR Leaders

• Severance Pay In The UK: The Complete Guide

• What Employers Need to Know About Redundancy Pay

• Notice Period UK: Important Facts and Legal Requirements

At the end of the day, if redundancies are handled with compassion, clarity, and fairness it might be possible to help employees leave gracefully and without resentment. That’s often the best you can expect.

However, if voluntary redundancy packages are generous, they might actually provide the fresh start in life that a soon-to-be-previous employee needs in order to move on to better things.

Bear this in mind as you go through the process. Not all endings are bad. Sometimes endings are just a way to start new beginnings.