Offering Voluntary Redundancy - What Employers Need To Know

Offering voluntary redundancy is a way that employers can reduce the size of their workforce by asking employees to voluntarily terminate their contracts in return for a financial incentive.

This is in contrast to standard redundancy proceedings where employers select employees at risk of redundancy themselves. 

Following a few economically tumultuous years, redundancy is a word that both employers and employees are now a lot more familiar with. Whether you’ve heard of voluntary redundancy or not, navigating the procedures and conversations surrounding this dismissal process can be a challenging and stressful time for all involved.

It is therefore a good idea to have redundancy experts on hand to support you when looking to make difficult business decisions around reducing the size of your workforce and exploring the options available to you.

When to offer voluntary redundancy

Making redundancies is never an easy decision, and it should only be considered when no other viable business alternatives are available. If your business can no longer support the number of staff you have or you need to cut costs to continue trading, one of the most efficient ways to save money is to reduce headcount.

When you are considering redundancy, you can allow employees to volunteer for redundancy before you move to make compulsory redundancies which can be beneficial for overall company morale. 

HR and redundancy advice for employers 

Neathouse Partners provide redundancy advice for employers. Our solution-driven, personal service ensures that employers have access to a named and dedicated HR or employment lawyer to help them expertly navigate HR best practice and employment law, regardless of how complex the issue may seem. 

Our team aims to free up your time to focus on running a commercially successful business, safe in the knowledge that you are 100% compliant with all aspects of UK Employment Law.

Redundancy is a challenging process that must be handled correctly to ensure employers don’t leave themselves open for employment tribunals and discrimination claims. It’s therefore important to have experienced HR support from a team that can advise you every step of the way, and Neathouse Partners can help. 

Our expert team is experienced in guiding all types of UK businesses through both redundancy and voluntary redundancy proceedings. We can help you deal with difficult discussions in a sensitive manner they need as you navigate the challenging period of redundancy and restructuring. We aim to help you ensure that employees are treated fairly, whilst maintaining the morale of the rest of the workforce 

Read on to find out more about voluntary redundancy including what it is, how to manage it, and the pros and cons to be aware of. 

What Is voluntary redundancy? 

Voluntary redundancy is when employers encourage employees to resign voluntarily in return for financial incentives and is often a preferred option to compulsory redundancies or layoffs for both employers and employees. 

Who can volunteer? 

Any employee can volunteer to be made redundant once you have advised the workforce that redundancies are being considered, but you do not have to offer voluntary redundancy to everyone, and you do not have to accept an employee's voluntary redundancy.

Employers can also select employees at risk of redundancy and offer them the chance of voluntary redundancy before compulsory redundancy is made. 

Employees can’t request to be made redundant at any other time as an alternative to handing in their notice in line with your usual contract termination process. Only when redundancies are being considered by the business can self-referrals be made. 

As an employer, you do not have to agree to submissions of voluntary redundancy. For example, you may find that somebody who is highly skilled and a great asset to the business has put themselves forward, but it would be detrimental to the business to let them go so you do not have to accept their offer. 

When to offer

As reducing headcount is one of the most efficient ways to save money, redundancies are usually considered when cost savings need to be made. 

Businesses need to be profitable to survive, and when it comes to making cost-savings, some common options to consider include removing a product or service that isn’t making money, closing a branch or office that is no longer financially viable, or reducing staff headcount. 

Redundancies should be a last resort and there are strict tests that need to be met to ensure redundancies are the only way forward. Employers must therefore be able to prove that there is a genuine need to make redundancies and no other viable option exists such as providing the employee with alternative work, changing their place of work or offering a new role. 

If the amount or kind of work that your employees have been doing is going to stop or has already stopped, then the tests of redundancy have been met.

The following examples are common reasons for employers having to make redundancies at work: 

• A downturn in the business means staff in certain roles are no longer needed
• If an employee’s skill set is no longer needed - due to new business processes, automated technology or outsourcing for example
• If the job an employee was employed to do no longer exists, often because it is being done by other people - this is common in the case of company mergers. 
• The business has ceased trading or will soon be closing down
• The business is relocating 
• The business transfers to a new employer 

Process to follow

If you have decided that voluntary redundancy is the route that you need to take at your organisation, then there are strict steps that employers must follow to meet their legal obligations and ensure they are not left open to claims of unfair dismissal or discrimination. 

It’s worth noting that there is a significant overlap between voluntary redundancy and the compulsory redundancy process, and you can find more about this, including redundancy consultation notice periods here. 

Voluntary Redundancy Process Overview

• Make sure that no alternatives to redundancy exist such as reducing benefits, working hours or other overhead costs. 
• Notify staff that redundancies are needed and invite any volunteers to come forward. At this point, you should be as open and honest with your employees as possible as to why the situation has arisen, and what other options were considered. 
• Typically, voluntary redundancy should be offered to those who would be at risk of compulsory redundancy but it can be offered to the entire company. 
• Outline any incentive that accompanies your offer of voluntary redundancy. This could include higher payments or bonuses when compared to statutory redundancy entitlement to make the prospect more appealing and incentivise staff to put themselves forward for consideration. 
• You should have a redundancy policy in place. It is advisable for this to clearly state that you reserve the right not to accept all voluntary redundancy applications. This can help to protect the business from losing a particular skill set and experience that would be detrimental to the business success should certain members of the team put themselves forward. 
• You must be very careful not to pre-select candidates at risk of redundancy, or shortlist those who have volunteered based on any protected characteristics such as gender, race, sexual orientation, marital status, age or disability etc. Breaching this can leave the business open to claims of discrimination. 
• Employees should have clear and justifiable business reasoning behind making redundancies 
• Any volunteers that are selected for voluntary redundancy must then be treated as being made redundant and not that they have chosen to leave their role. This will ensure they receive redundancy pay if eligible alongside their full notice period.

Are there any benefits? 

Letting go of staff is never an easy decision, but voluntary redundancy doesn’t have to be all doom and gloom, as there are some benefits available for employers considering voluntary redundancies. 

• Voluntary redundancy could reduce the need to make compulsory redundancies
• Voluntary redundancy is likely to have less impact on the workforce than enforced redundancy 

By offering voluntary redundancy to your employees, you may find that some members of the team are already considering their position at the firm, either due to unhappiness in their role or impending retirement for example. 

In these cases, they may be happy to accept voluntary redundancy which would remove the need for management teams to go through the difficult process of selecting employees for redundancy, which can be stressful for all parties involved. 

Voluntary redundancy is generally viewed as a more positive outcome than compulsory redundancy. If staff self-select themselves to leave, then the impact on overall company morale is likely to be more positive than during a period of enforced redundancy selections, where it’s not uncommon to see the workforce become disengaged and anxious. 

When employees put themselves forward for redundancy, this is of their choosing and removes the negative, emotional feelings usually experienced and directed at management with standard redundancy discussions. 

Negative outcomes

Sadly, there will always be negative outcomes of voluntary redundancy too including; 

• You could lose your best staff
• The cost involved could potentially be higher
• You may have more volunteers than you can offer voluntary redundancy for

Staff with long periods of service at the company are entitled to receive better redundancy payouts than those with a few years of service under their belt. This might make voluntary redundancy an attractive prospect to very experienced members of staff, and if successful in their self-selection, you could face losing a lot of knowledge and understanding about key business areas and processes. 

Voluntary redundancy comes with a financial incentive that is more favourable to employees who have been with the company for the longest period. If your long-standing employees put themselves forward and you decide to accept, you could face higher costs to finalise the redundancy than if employees with less time with the company put themselves forward. 

When employees put themselves forward for voluntary redundancy, it's up to you, the employer, to accept or reject the offer. You may be forced to reject offers if you have more volunteers than you have the financial capacity to offer redundancy for. 

This could result in those people who are not accepted feeling negatively about the company and becoming demotivated as a result. You also run the risk of having an uncertain working relationship going forward, wondering why they wanted to leave in the first place, and whether they truly want to stay after being rejected for voluntary redundancy. 

Incentivising the decision 

Employees have the right to certain things when it comes to redundancy relating to pay, notice period consultation and time off to find a new job. 

View gov.uk for the rules around these things, and what you must provide. It’s not uncommon however for employers to want to offer more than the statutory requirements to their employees when it comes to voluntary redundancies. 

You may find that by creating an appealing redundancy package, you get a better uptake for voluntary redundancy which can prevent the need for compulsory redundancy.

Things to consider include:

• Extra redundancy pay above and beyond the statutory amount
• Waiving the need for the employee to work their notice period 

Pitfalls to be aware of 

Employers must treat employees fairly in all situations regarding their characteristics or traits. In discussions relating to voluntary redundancy, it’s especially important to be mindful of this to prevent claims of discrimination from being made.

You do not need to offer voluntary redundancy to all staff, but you must ensure that staff who aren’t offered voluntary redundancy do not feel they were stopped from volunteering due to protected characteristics such as gender, age, marital status, sexual orientation etc. 

Claims of discrimination can also be made if employees feel forced into redundancy when employers have refused voluntary offers from other members of staff. 

Related questions 

Is voluntary redundancy the same as dismissal? 

Although different processes apply between redundancy and dismissal, any employee who has volunteered for redundancy has effectively agreed to be dismissed. 

If an employee had handed in their notice voluntarily they would have resigned, but because they are being dismissed, employees must tread very carefully to ensure claims of unfair dismissal aren’t brought against them, even if the employee voluntarily put themselves forward for redundancy. 

Examples of this might include if there was never a genuine reason for redundancy in the first place. 

Summary 

Conversations between employees and employers regarding redundancy, including offering voluntary redundancy can be a minefield to navigate. We hope that this article has given you some clear points of reference to follow when tackling this topic at your place of work. 

To recap, 

• Voluntary redundancy is a way that employers can reduce the size of their workforce by asking employees to volunteer to terminate their contract in return for a financial incentive. This is in contrast to standard redundancy proceedings where employers select employees at risk of redundancy them
• Redundancy should only be considered as a last resort and when there is a genuine business need to reduce headcount and if no other viable business options exist.
• After notifying staff that redundancies are being made, employees have the opportunity to put themselves forward for voluntary redundancy but you, the employer, do not have to accept their self-selection.
• After accepting a voluntary redundancy offer from employees, employers must then treat the employee as if they are being made redundant and ensure all correct procedures relating to notice periods, consultancy periods and time off to find work are adhered to. 

Need support? 

Neathouse Partners can assist employers with all aspects of employment and HR law including providing advice and support regarding voluntary redundancy. 

If you would like advice on managing redundancy discussions with employees and the process to follow, our expert team is here to help.