Employers should consider all workforce options before pursuing compulsory redundancies. This includes offering voluntary redundancy.
As a way to reduce headcount, ‘self-selection’ for redundancy can bring a number of benefits. Voluntary redundancies are generally more straightforward to deal with than compulsory redundancies, and entail less stress and animosity between the employer and affected employees. This can result in reduced risks relating to reputation and workforce morale.
What is voluntary redundancy?
Voluntary redundancy is an option where you offer your employee(s) a fair financial package, or incentive, to end their employment with you by agreement.
Where there is take up, you may be able to avoid making compulsory redundancies, although you should consider the possibility that may still have to pursue compulsory redundancies even after the offer voluntary exits.
The difference between compulsory and voluntary redundancy is that the former entails a legal selection process determining the roles and employees at risk of redundancy, whilst the latter relies on an employee stepping up voluntarily.
Why offer voluntary redundancy
There are many potential benefits of allowing employees to voluntarily resign. Lowering headcount on voluntary basis avoids the need to follow the protracted consultation and selection process, saving the organisation time and money. It can also be a better option to maintain workforce relations by making employee exits amicable since the employee gets to have their say on the terms of their exit. This can help to foster positive relations in future and promote workforce morale by taking a more progressive approach and putting your employees at ease during periods of change.
Voluntary redundancy also reduces the risk of legal claims such as unfair dismissal, since the employee has taken the decision following negotiations and is resigning through choice.
At the outset of any redundancy process, you will need to check contracts of employment. If these include a term that volunteers will be sought in a redundancy situation before any compulsory redundancies, this must be followed.
Offering voluntary redundancy
If you are offering voluntary redundancy, you will need to follow the correct process.
Start by sending out a communication to eligible employees explaining the situation and asking for volunteers. Being honest and upfront about current difficulties and the reasons for the redundancy can instil trust and avoid rumours.
The aim of voluntary redundancy is to incentivise employees financially into agreeing to leave the business. This means offering a fair package which would appeal to employees.
For those who express an interest, a voluntary redundancy letter should be provided explaining the process and what the voluntary redundancy package on offer would be. You will need to be clear on the amount that is being offered to them, what will happen to any benefits, bonuses and commissions they are entitled to, details of their notice period and whether this will be worked or PILON applies, and what will happen to accrued annual leave.
In most cases, voluntary redundancy will involve negotiation with the employee to agree the final exit package, or settlement, to leave the organisation.
Those taking voluntary redundancy have the same rights as under the compulsory redundancies, this includes consultations and allowing time off to find new work.
Record keeping will be important throughout the process, of discussions and communications. This is helpful in the event of any potential future complaint about the process.
Voluntary redundancy package
When building a package, you should consider factors such as:
- Statutory entitlements eg statutory redundancy pay if they have at least two years’ continuous service
- The length of the employee’s notice period
- The time it could take them to find a new job
- Any contractual benefits they are entitled to
- Any discretionary payments you are willing to make
- Statutory entitlements and contractual terms
For each full year the individual has worked for the organisation, they will be entitled to statutory redundancy pay as follows:
- up to age 22 – half a week’s pay
- age 22 to 40 – 1 week’s pay
- age 41 and older – 1.5 weeks’ pay
The maximum weekly amount is £544, and there is a cap of 20 years’ continuous service.
Use this information to calculate the maximum settlement amount you each employee is entitled to, and if you are able to outlay more as a financial incentive.
In practical terms, voluntary redundancy usually involves offering a more generous settlement than the employee would otherwise be entitled to under compulsory redundancy. This is to encourage employees to take up the offer and to allow the business to avoid the compulsory redundancy process. This could mean offering six months’ pay, or even a full year’s pay.
The initial settlement offer would usually be below the maximum amount, to allow for negotiation. Remember, the employee has the right to decline any offer for voluntary redundancy and withdraw from the voluntary redundancy process.
Do employers have to accept offers for voluntary redundancy?
Employers are not obligated to accept offers from employees to take up voluntary redundancy. It is for the employer to agree to the resignation. This should be made clear to employees when offering voluntary redundancy.
If several employees have volunteered, the employer will need to take steps to select from the ‘pool’ of volunteers for redundancy. Any selection from the pool of volunteers will have to follow a fair process, to avoid legal complaints.
This should involve assessing applications based on criteria such as their role, skills, attendance and disciplinary record. This also helps to avoid situations where key employees volunteer who the employer would wish to retain.
Again, record-keeping will be critical here as evidence of decision-making and reasoning. If the organisation refuses applications for voluntary redundancy but then goes on to make compulsory redundancies, it should be prepared to defend its decision. Employees who are compulsorily made redundant may be able to claim that their dismissal was unfair since their role could have been saved had the voluntary redundancies been accepted.
Early retirement
If any of your employees are close to retirement, you may suggest they take voluntary early retirement instead of voluntary redundancy. If this is proposed, there should be a fair selection process. You should set out the proposed retirement package, including redundancy payments and notice periods.
Voluntary redundancy FAQs
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Legal disclaimer
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.
