What is redundancy pay?

Redundancy pay is the financial compensation that employers offer employees when removing their positions from the organizational structure. 

Ideally, organizations will always need all their employees– recruiting, hiring, and training new people is a significant investment, after all. However, external circumstances, such as company restructuring, job obsoletion, merging or transferring company ownership, relocation, or a downturn in business, can cause role redundancy. 

While the United States Department of labor leaves redundancy pay up to the employee-employer agreement, UK law includes basic redundancy regulations for employers to adhere to, in addition to contractual bylaws.

Why should HR leaders care about redundancy pay?

By following redundancy pay regulations and incorporating strategic redundancy practices, HR leaders can maintain a well-functioning organization. Moreover, management that demonstrates ethical employee treatment and compliance with governing laws can positively impact employee morale, engagement, retention, and company brand.  

What can HR leaders do to implement redundancy pay?

If a company decides to enact a redundancy process after exhausting alternative options, the following steps can contribute to an effective system:

  • Design a plan. Adhering to a framework helps maintain transparency and avoid legal pitfalls. The plan should include: developing criteria, creating a redundancy pool, informing and consulting with employees, selecting redundant positions, and an optional appeal process
  • Show compassion. When communicating the news to employees, managers and HR leaders should emphasize that the role, not the employee, has become redundant. Leadership should actively listen to the employee and validate their concerns to demonstrate respect and empathy. The redundancy payment should provide practical financial benefits and reflect care for the employee’s future career opportunities. Additionally, management can offer outplacement guidance to employees. 
  • Document every step of the process. Dismissed employees will want to know why their employer terminated their employment, so managers must provide fair and legitimate reasoning for their decisions. Tracking the thought-process behind each decision enables HR leaders and managers to demonstrate integrity and transparency in their decisions.  
  •  Ensure that each role has an accurate job description.  Detailed and accurate job descriptions allow HR personnel to compare and contrast job roles, discover overlap, and determine which positions have priority.
  • Determine the pay. The conditions of receiving redundancy pay depend on the employee’s age, employment duration, and the specifications in the employment contract. To calculate redundancy pay, click here.

How can proper implementation of redundancy pay improve company culture?

Redundancy can be an emotionally, financially, and mentally challenging process for both employers and employees. However, a strategically planned redundancy pay program that aligns with a comprehensive workforce strategy can ultimately support the development of a dedicated workforce and robust company culture.