As autumn sets in and businesses look ahead to a tighter final quarter, with an Autumn Budget on 28 October that could reshape costs further, many small business owners are quietly turning over one question: whether they need to make redundancies, and if so, how to do it properly. Getting redundancy laws for employers right matters whatever the size of your business, and even a single redundancy, handled badly, can end up costing far more in an employment tribunal than it would have done to follow the correct process from the outset.
Nobody goes into business planning to make redundancies, but knowing the rules before you need them makes an already difficult decision considerably less risky.
What counts as a genuine redundancy
Redundancy is a specific legal concept, not simply a convenient label for letting someone go. It applies when a role genuinely disappears, whether because the business is closing, a particular site or department is closing, or there’s reduced need for employees to do a particular kind of work. If you’re planning to replace the person, or the real reason relates to their conduct or performance, it isn’t redundancy, and treating it as one can leave you exposed to an unfair dismissal claim.
Where more than one employee could be at risk, you’ll also need a fair and objective selection process. Selection criteria such as skills, qualifications, attendance and disciplinary record are generally defensible; selecting on the basis of age, pregnancy or other protected characteristics is not, however the selection is dressed up.
Consultation duties under redundancy laws for employers
You must consult every employee at risk of redundancy, regardless of how many people are affected. For fewer than 20 redundancies at one establishment, there’s no fixed statutory process, but a fair consultation should still explore alternatives, explain the reasoning, and give the employee a genuine chance to respond before any final decision is made.
Where you’re proposing 20 or more redundancies at one establishment within a 90-day period, collective consultation rules apply, with a minimum 30-day consultation period before any dismissals take effect, rising to 45 days for 100 or more redundancies. Getting this wrong is expensive: from April 2026, the protective award for failing to consult properly doubled to up to 180 days’ gross pay per affected employee.
Notice periods and pay
Employees are entitled to statutory minimum notice based on length of service: one week for those with between one month and two years’ service, then an extra week for each further complete year, up to a maximum of 12 weeks for 12 or more years’ service. Your employment contracts may specify longer notice, in which case the longer period applies.
Statutory redundancy pay applies once an employee has at least two years’ continuous service, calculated using age, length of service and weekly pay, capped at £751 a week for redundancies from 6 April 2026. That works out at half a week’s pay per year under 22, a full week per year between 22 and 40, and one and a half weeks per year from 41 upwards, capped at 20 years’ service, giving a maximum statutory payment of £22,530. The first £30,000 of a redundancy payment is free of income tax and National Insurance.
What’s changing under the Employment Rights Act 2025
If financial pressure has you reconsidering recent or upcoming hires, one change is worth building into your planning now. From 1 January 2027, the qualifying period for unfair dismissal protection reduces from two years to six months, and this will apply immediately to anyone who already has six months’ service by that date. In practice, this means employees hired from around mid-2026 onwards are likely to gain unfair dismissal protection well before their second anniversary, so probation periods and early performance management matter more than ever.
Getting redundancy laws for employers right in practice
Redundancy laws for employers exist to ensure fairness, but they also protect you from costly tribunal claims when followed properly. Document your reasoning, apply selection criteria consistently, explore genuine alternatives such as redeployment, and keep a written record of every consultation meeting.
If redundancy is being driven by cash flow pressure rather than a genuine restructuring need, it’s worth exploring your options before committing to job losses. Our guides on warning signs of cash flow problems and government schemes for managing business debt are worth a read before you get to that point.
If you’re facing difficult staffing decisions, contact Adams Accountancy for a free, no-obligation chat about your options, or call us on 01322 250001. As always, no question is too silly when it comes to navigating a challenging decision.
About the author
Michelle Adams is a qualified accountant and director at Adams Accountancy, a friendly accountancy practice based in Dartford, Kent. With over 15 years of experience helping limited company directors and small business owners across Kent and beyond, Michelle helps clients navigate difficult staffing decisions with clear, practical guidance.
Frequently asked questions
Do I have to pay redundancy to an employee with less than two years’ service?
No, statutory redundancy pay only applies once an employee has at least two years’ continuous service with you. You must still follow a fair process and give the correct notice period, even if no statutory redundancy payment is due.
Can I offer an employee a different role instead of redundancy?
Yes, and exploring suitable alternative employment is an expected part of a fair redundancy process. If you offer a suitable alternative role and it’s unreasonably refused, the employee may lose their right to statutory redundancy pay.
Is redundancy pay taxable?
The first £30,000 of a genuine redundancy payment is free of income tax and National Insurance. Any amount above this is taxed as income, and pay in lieu of notice is always taxable in full.
What happens if I don’t consult properly before making someone redundant?
An employee can bring an unfair dismissal claim if you haven’t consulted properly, even where only one person is affected. For collective redundancies of 20 or more, failing to consult correctly can also result in a protective award of up to 180 days’ gross pay per employee.