REDUNDANCY by benbenzhou

VIEWS: 139 PAGES: 24

   - a guide
PEACe, October 2009

The contents of this Guide should not be taken to be a definitive
and complete statement of the law. Employers considering the
redundancy of employees and/or the closure of projects are
advised to seek further advice and information from PEACe, the
sources outlined in this Guide or from their own professional

Redundancy Guide                                                    1
 Acas emphasises: “the importance of planning labour
 requirements to avoid or to minimise the need for
 redundancies; the benefits of establishing an agreed
 procedure for handling redundancies; and the need for
 fairness and objectivity when selecting members of the
 workforce for redundancy…

 The principles of good practice… apply to all employers
 regardless of size of organisation…. Small firms, in particular,
 may adopt a policy or agree a procedure that simply consists
 of an intention to consult individual employees, paying
 particular attention to ways of avoiding or minimising
 redundancy, and to adopting a fair and objective basis for
 redundancy selection. This will allow management (and
 employee representatives where appropriate) some flexibility
 in deciding the best course of action when a redundancy
 becomes imminent.”

Extract from "Redundancy Handling", published by Acas
(the government funded Advisory, Conciliation and Arbitration
Service). It can be downloaded from

Redundancy Guide                                                    2


In facing, and taking, important decisions around redundancy it is essential that
management committees and staff take advice and have the necessary
information to act prudently, to protect jobs where possible and to ensure that all
their legal obligations are met.

The bulk of this guide concerns the responsibilities of management committees
as employers and examines the law regarding redundancy. However, at a time
of substantial cuts in grant aid, the responsibilities of management committees to
manage the finances of their organisations and to formally close down their
organisations, should this become necessary, also need to be referred to.
Section 4 of this guide looks at some of the issues that arise when an
organisation needs to close down. Section 6 lists the resources and people that
management committees can use for advice and support.


Management committees are legally responsible for their organisations and all its
actions. Even if duties are delegated to members of staff, the ultimate
responsibility will remain with the management committee.

Management committees can find themselves personally liable for the debts
incurred by their organisations, so it is for the sake of individual management
committee members themselves, as well as for their organisations and their
employees that advice should be sought.

The legal liability for debt of individual members of a management committee is
determined by the legal status of the organisation, i.e. whether an organisation is
unincorporated or incorporated, and their own behaviour.

In an unincorporated organisation, management committees do not have any
protection against actions by a creditor to recover debts. Although the
organisation may be insolvent, the management committee members may be
personally liable for any redundancy payments.

Even in an incorporated organisation, such as a company limited by guarantee,
where management committee members are protected, if the management
committee members are irresponsible and continue to incur debts that they know
they cannot repay, they can be found guilty of wrongful trading.

A committee member or trustee cannot avoid liability by resigning before the
organisation runs into debt. An individual will remain potentially liable for any
commitments made before resignation.

Redundancy Guide
In employment law a redundancy arises when an employer has to reduce her/his
workforce. The practical situations in which redundancies can occur are
numerous but they are most likely to arise because:
     **    the organisation closes
     **    the organisation has more employees than it can pay

For voluntary organisations one of the most common causes of the organisation
needing to close or only being able to pay fewer employees will be loss of grant
aid. However, as far as the law is concerned the reason for redundancy is
immaterial; if the result is that the employer needs fewer employees at the
establishment where they were contracted to work, those employees dismissed
will have been dismissed because of redundancy.

Normally a person's job will have disappeared; it is not a redundancy if the
employer immediately engages a direct replacement. However, it is possible to
make a person doing a particular type of work redundant while at the same time
recruiting people with other skills. For instance an organisation may be
expanding on one side of its work and running down another. It may find it has
too many administrative staff and a shortage of care workers.

Employees being made redundant are entitled to receive the length of notice
specified in their contract, or the statutory minimum, whichever is the greater
(see section 3.D.). Employers should make sure they comply with the Acas
advisory booklet on Redundancy Handling (available from ).


The Employment Rights Act 1996 lists potentially fair reasons for dismissing an
employee; redundancy is one of those reasons. Redundancy dismissals can be
found to be unfair if proper consultation and selection procedures are not
followed, inadequate warning of redundancy is given and if the employer fails to
consider alternative employment for the employee. (see Sections 3. A, B, C, D).

Complaints of unfair dismissal are made to an Employment Tribunal (ET). If the
ET finds that a dismissal is unfair then it can order that the employee be
reinstated in the job or awarded a compensation payment.


An employee who is made redundant, and who fulfils certain age and service
conditions is entitled to receive as compensation from her/his employer the
minimum level of redundancy payments set out in the Employment Rights Act
(see section 3. E.) and increased by the Government each year.

Redundancy Guide
3.A. - Consultation
3.B. - Selection Criteria
3.C. - Offers of Alternative Work
3.D. - Giving Notice to Employees
3.E. - Redundancy Payments

At some time some voluntary organisations may be faced with a complete
withdrawal of grant aid, or loss of other funding. If an organisation is heavily
dependent on this grant aid the Management Committee may decide that the
project will no longer be viable and arrange for an orderly closure of the
organisation which will include the redundancy of all the employees. In these
circumstances redundancy handling will focus less on how employees will be
selected for redundancy and more on the timing and manner of the redundancies
and redundancy payments.

However, for some voluntary organisations a complete withdrawal of grant aid or
a reduction in grant aid or loss of other funding will not result in complete closure
but will result in the need to make one or more staff redundant. Management
committees must follow the guidelines set out in legislation and good practice,
but they must also look at the individual circumstances of their organisation and
its employees in reaching their decisions. In determining which posts will be
made redundant, management committees will have to refer back to the
objectives of the organisation, as well as the remaining financial resources, to
decide what services can best fulfil these objectives within a smaller organisation
and the posts required to deliver those services. You will also have to consider
whether grant aid is linked to specific posts and whether this will have an impact
on decisions.



The purpose of consultation is to provide as early an opportunity as practicable
for all concerned to share the problem facing the organisation and explore the

LEGAL REQUIREMENTS: Employers have a statutory duty to consult „in good
time‟ where more than 20 employees are to be made redundant. Where more
than 20 employees are to be made redundant within a period of 90 days,
consultation by law must begin at least 30 days before the first dismissal takes
effect. If 100 or more employees are affected than consultation must begin at
least 90 days before the first of the dismissals takes effect.

Employers who recognise independent trade unions must consult with
representatives of that union, even if the affected employees are not members of
the union. Where there is no recognised union, the employer must consult with
employee representatives. A failure to consult can lead to an Employment
Tribunal awarding compensation called a "protective award."
Redundancy Guide
If 20 or more employees are to be made redundant, the employer must also give
the Department for Business, Innovation and Skills (BIS previously known as
BERR) written notification of the redundancies at least 30 days before the first
dismissal takes place and give copies of the notice to the representatives. Failure
to notify is a criminal offence.

More details in BIS‟s guide „Redundancy consultation and notification‟

It is good practice for all organisations, regardless of their size and the number
of employees to be made redundant should consult with trade union or employee
representatives as early and fully as possible, before any final decision on
redundancy is made.

Dismissals are more likely to be unfair for lack of individual rather than
collective consultation.

LEGAL REQUIREMENTS: Quite apart from collective redundancy consultation,
employees have a right to be consulted individually, no matter how many
staff are being made redundant, no matter whether they are members of a trade
union. Even if an organisation only has one employee, they are under a legal
obligation to consult with the individual.

Employment tribunals have stated that 2 meetings with an individual with at
least a 2-week gap between them provide a fair individual consultation

PEACe‟s recommendation is to follow this guideline of 2 meetings, with the first
meeting following the sending out of written notification to the individual that
they are likely to be made redundant and explaining the process that will be
followed. Not until a second meeting (at least) has taken place should notice be
given. E.g. if one month‟s notice is expressed in the contract, the consultation
should start at least 6 weeks before the potential redundancy can take effect.

Following the second meeting the employee has the right to appeal against the

Therefore the recommendation is that:
  1) the employer writes to the individual explaining that redundancy is being
     considered, inviting them to a consultation meeting and explaining the
     process to be followed (see the sample letter on page 21) ;
  2) a consultation meeting is held with the individual;
  3) following at least a 2-week gap allowing both employer and employee to
     consider what has been discussed, the individual is invited to a second
     consultation meeting (this second meeting can be part of the statutory
     dispute resolution procedure, which must be followed until April 2009).
  4) the employer makes a decision on whether redundancy will go ahead or if
     suitable alternative employment can be offered;
  5) the individual is informed in writing of the decision made which may mean
     a letter of redundancy giving due notice (see the sample letter on page
  6) the individual is allowed to appeal against the decision made.
Redundancy Guide
GOOD PRACTICE: It would be good practice to allow employees to be
accompanied by a trade union representative or work colleague at all the
consultation meetings.

Employers should make sure there is a reasonable length of time for consultation
on top of the notice period. Ideally no notices of dismissal should be sent out
during the consultation period to clearly signal that a genuine consultation is to
take place. The 2 meetings suggested is guidance for a minimum consultation
process. Employers must respond reasonably to requests from employees to
meet and this may mean providing more than 2 meetings.

WARNING: Management committees failing to consult or refusing to consult
leave themselves open to an action for unfair dismissal, plus protective award
payments. Protective award payments represent the compensation for
consultation not undertaken.

Employers should check whether a redundancy policy exists setting out the
procedure to be followed when redundancies are considered. They should ensure
that employees are made aware of the contents of such a policy.

Some voluntary organisations do have a redundancy policy in place. The policy
may be part of the contract of employment given to employees or be included in
a Staff Handbook. The policy may make reference to consultation periods over
and above the statutory minimum.

The advantage of having a policy in place reduces the possibility of
misunderstanding or conflict, and help ensure fair treatment.

(PEACe‟s model redundancy policy can be downloaded from the LVSC website


LEGAL REQUIREMENTS: Employers have a statutory duty to disclose in writing
to the recognised trade union or employee representative certain information
about proposals for redundancy so that they can play a constructive part in the
consultation process:-

**     The reason for the redundancies
**     The numbers and descriptions of the employees it is proposed to dismiss as
**     The total number of employees of any such description affected
**     The proposed method of selecting the employees who may be made
**     How the dismissals are to be carried out, taking account of any agreed
       procedure, including the period over which the dismissals are to take effect
**     Information on how redundancy pay will be determined.

GOOD PRACTICE: It is recommended that similar information as listed above is
sent out to individuals whether a union exists or not.

Redundancy Guide
Information should also be provided to individuals on other aspects of the way
redundancies will be handled. For example:-

**     Can redundant employees leave before their notice expires?
**     What arrangements are there for redundant employees to have time off to
       seek alternative work? It is a statutory entitlement for employees who
       have been continuously employed for at least 2 years to be allowed
       reasonable time off to look for another job or to arrange training. Where
       possible, the employer should provide this assistance to all employees
       affected by redundancy.
**     Would an employee's earnings be protected if they accepted another post
       at a lower grade?
**     Will trial periods in an alternative job be extended beyond the statutory
       minimum? (See section 3.C.)

There are a number of things that can be done to avoid having to make
redundancies, or at least minimise the number of redundancies that have to be
made, and these should be discussed with the employees during the consultation

**     RE-TRAINING AND RE-DEPLOYMENT. If a project loses funding for
       some posts, it may be possible for the holders of those posts to be re-
       deployed into other vacancies within the organisation (see section 3.C.).

**     FREEZING OF VACANT POSTS. If a project has a number of posts that
       are vacant then it may be possible not to fill these posts in order to avoid
       making staff redundant.

**     REDUCING THE USE OF TEMPORARY STAFF. Some projects make
       extensive use of temporary or relief workers, and if this practice is reduced
       or stopped altogether then fewer cuts to the permanent workforce should
       be necessary.

**     VACANCY FREEZE. If the shortfall in a projects budget is relatively small
       it may be possible to balance the books by delaying the filling of each
       vacancy that occurs in the year to make up the shortfall.

**     RINGFENCING. If redundancies have to be made then the employer
       could agree to offer any future vacancies to the workers made redundant
       before advertising elsewhere.

**     REDUCING HOURS OF WORK. Instead of losing staff the workers could
       all agree to work fewer hours, or reducing overtime. This is only a solution
       where all the workforce are in agreement, as it would involve a change in
       the contract of employment of each employee.

**     FUNDING FROM ELSEWHERE. A few voluntary organisations may be
       fortunate enough to obtain alternative funding.

**     TEMPORARY LAY-OFF. The contract of employment must include a
       clause to allow this. If it does not the contract‟s terms would have to be
       varied by agreement with individual employees. Employees who have
Redundancy Guide
       been laid off for either 4 consecutive weeks or for any 6 weeks in a 13-
       week period can give notice that they intend to claim redundancy.
       Therefore any lay-off should be for a very short period.


In order to fairly select employees for redundancy, the employer must use clear,
objective selection criteria. Once the criteria have been adopted they must be
consistently applied. The employer must be able to show that an employee was
fairly selected, and that when selecting a particular employee they used the
agreed selection criteria, and where a number of employees are possibly affected
by the redundancy, they have all been compared in relation to the criteria.


LEGAL REQUIREMENTS: Just because the reason for making an employee
redundant is a genuine one it does not necessarily follow that it is fair. The
dismissal of an employee selected for redundancy will be unfair for example, if it
is for one of the following reasons:-

**     The selection is in breach of a customary arrangement or agreed procedure
       unless there are special reasons to justify departure from it.

**     The selection is for a trade union reason.

**     The selection is for taking action on health and safety grounds.

**     The selection is for asserting a statutory employment right.

**     The selection is discriminatory, either directly or indirectly, on the grounds
       of race, sex, marital status, sexual orientation, religion or belief, age or
       disability. Furthermore, dismissal for redundancy may also be considered
       unfair where the circumstances applied equally to other employees but
       they were not selected for redundancy.

If an employee wishes to make a claim for unfair dismissal, (see section 2) the
employer would have to demonstrate how they came to choose that individual
for redundancy, rather than other employees by showing how the selection
criteria were applied to each individual in the "pool" of employees facing

Staff on maternity leave, or staff who are pregnant, must receive equal
treatment with all other employees, and their suitability for redundancy be
judged by using the agreed selection criteria.

Before an employee can claim that their selection for redundancy was unfair they
must show that there was at least one other person in the same organisation
doing a similar job who was not made redundant.

A claim for unfair selection may also arise where the employer has failed to
undertake a reasonable search for alternative work within the organisation (see
section 3.C.) or dispenses with any warnings or consultation without any good
Redundancy Guide
reason (see section 3.A.).


**     VOLUNTARY REDUNDANCY. One acceptable method is for employees to
       volunteer to be considered for redundancy. The employer can reserve the
       right to select from the list of volunteers those employees who are to be
       dismissed. Employees who volunteer for redundancy would still be entitled
       to receive statutory redundancy payments.

**     EARLY RETIREMENT. This is not a realistic option for most voluntary
       sector projects. It should be noted that employees who volunteer for early
       retirement are not entitled to statutory redundancy pay. With age
       discrimination legislation, employers should also be wary of early
       retirement options as it is unlawful for employers to retire staff below the
       age of 65 unless it can be objectively justified. If the employee volunteers
       for early retirement it should be clearly recorded in writing and signed by
       both parties.


Organisations can consider using one of the selection criteria set out below or a
combination of any of these. The need to retain a balanced workforce with the
relevant skills and experience to undertake the remaining jobs is a permissible
criterion, but the scope for retraining staff should also be borne in mind. The
situation in each organisation will be different and criteria should be selected

**     WORK PERFORMANCE. An alternative selection criteria is the standard of
       work performance, but there would have to be some objective evidence to
       support the selection on this basis in order to avoid claims for unfair
       selection. Few voluntary organisations operate a sufficiently detailed
       appraisal system to provide such objective evidence.

       ensure they are accurate before relying on these criteria which can easily
       be used inappropriately. Employers should taken into account the reasons
       for and extent of any absences. (see „Warning‟ below).

**     LEVEL OF SKILL/QUALIFICATION. Employers may not necessarily put
       the highest value on formal qualifications or advanced skills but on those
       skills, abilities and experience that will be required by the organisation in
       the future.

WARNING: Employers can sometimes fall foul of unfair dismissal rules by not
combining their selection criteria with common-sense, or not considering whether
they could be directly or indirectly discriminatory. It is more common for
employers to use a number of criteria.

For example, if the criteria were based simply on absence levels, it would clearly
be unfair to dismiss an employee who had been on sick leave for 5 weeks in the
last year due to a car accident, whilst retaining an employee with under 6
months‟ service who had only taken a couple of days off.
Redundancy Guide
Absences relating directly to an employee‟s disability should be discounted when
using absence records as a selection criteria.

It is good practice to provide a redundancy appeals procedure to deal with
complaints from employees about the redundancy process, preferably heard by a
more senior member of staff or panel of management committee members.

The appeal can be on the grounds that they feel that they have been unfairly
selected for redundancy; or that the redundancy process has not been carried
out properly; or that a job they considered suitable has not been offered to

The PEACe Model Redundancy Policy which outlines an appeal, can be
downloaded from the LVSC website


Employers should consider whether employees likely to be affected by
redundancy can be offered suitable alternative work. It is up to the employee to
decide whether the alternative work is suitable. Decisions should be influenced
by a number of factors involving pay, status, location, working environment and
hours of work.

THE OFFER:         It is the employer‟s responsibility to show that an offer of
                   alternative employment has been made and therefore any offer
                   should be put in writing, providing enough detail to give a clear
                   idea of what is being offered. The offer should show how the
                   new employment differs from the old. By law it must also be
                   made before the termination of the job from which the
                   employee is being made redundant. The new contract must
                   take effect within 4 weeks from the old contract ending.
                   Employees who unreasonably refuse an offer of suitable
                   alternative employment may lose any entitlement to
                   redundancy pay. Unreasonable refusal may arise where the
                   differences between the new and old jobs are negligible.

TRIAL PERIOD: An employee who is under notice of redundancy has a statutory
              right to a trial period of four weeks in an alternative job where
              the provisions of the new contract differ from the original
              contract. This period can be extended by agreement in writing
              for retraining purposes. If the employee works beyond the four
              week period (or any agreed longer period) any redundancy
              entitlement will be lost because the employee will be deemed
              to have accepted the new employment.


A general warning that there will be redundancy dismissals at an unspecified time

Redundancy Guide
in the future is not notice. Dismissal notice must at least specify the termination
date. A sample letter to an employee being made redundant is included in
Appendix 1.

LEGAL MINIMUM:           Employees are entitled by law to minimum periods of
                         notice as follows.


More than one month but
less than two years                               One week

More than two years but
less than three years                             Two weeks

More than three years but
less than four years                              Three weeks

More than four years but
less than five years                              Four weeks

and so on up to a maximum of 12 weeks for 12 years or more continuous

If the employee's statement of terms and conditions of employment, give a
longer notice period than the statutory minimum set out above then that would
be the employee's contracted right.

Most voluntary organisations in the voluntary sector would have longer notice
periods than the statutory minimum written into their contracts of employment.
It is unlikely that employees would be on less than one month's notice.
Management committees should check their employees' contracts of
employment. If there is no proper statement of the terms and conditions of
employment, other written information such as the letter of appointment should
be checked. In the absence of any evidence to the contrary, a Court may
consider employees who are paid monthly, should receive a minimum period of
notice of one month, unless length of service entitled the employee to a longer
period of notice.

Management Committees may want to consider offering employees payment in
lieu of notice, and indeed this possibility in a redundancy situation may be written
into an employee's contract of employment. If you offer your employees
payment in lieu of notice, this means they do not have to work out their notice
period. Employees would still be entitled to statutory redundancy payments.
This may suit some employees but not others and management committees
should consult with individuals.

However, you should note that if pay in lieu of notice is a contractual right, it is
taxable. Conversely, if it is not in the contract and it is not standard practice for
the organisation, but you do offer it because it has not been possible to give
proper notice, the payment can be made without tax deducted.
Redundancy Guide

Employees served with a redundancy notice, who would qualify for statutory
redundancy payments i.e. having had at least 2 years‟ continuous employment
(see section 3.E.), are entitled to take reasonable time off with pay during the
notice period to seek work or retraining.

If time off is refused employees can complain to an Employment Tribunal.
Compensation is equivalent to the appropriate hourly rate for the time off subject
to a maximum of two fifths of one week's pay if the complaint is proved.

The employee's statement of terms and conditions of employment may extend
this right and it is good practice to allow ALL employees the right to time off and
not to unnecessarily restrict the amount of time off. Check through the
statement to see what terms and conditions you offered your employees when
they were appointed.

Management Committees should consider if they can give any other assistance to
employees who will be made redundant, e.g. access to professional counselling,
help with making job applications, interview techniques, and advice on benefits.


Management Committees faced with a loss of grant aid should take into account
the costs that will be incurred in making employees redundant when assessing
the organisation's financial situation. The Management Committee will need to
know what their legal liability is towards employees for redundancy payments
and salary during notice.

Before considering any other payments over and above those legally required
e.g. contractual redundancy payments, employers need to be certain that the
organisation can afford these payments. Organisations which will be closing
down need to take into account the other claims on the organisations assets such
as settling photocopier agreements, leases etc.

Employers are required to make a minimum lump sum compensation payment to
an employee who has been dismissed because of redundancy and who has been
continuously employed by them for at least two years. Statutory redundancy
pay is not subject to tax or national insurance.

The amount of payment is dependant on the age of the individual, the length of
service and the average weekly wage up to a maximum statutory limit of £380
per week from 1st October 2009 (normally increased by the Government each
February, not expected to be increased again until February 2011), although
employers may wish to pay more than this limit as a contractual entitlement.

When calculating whether an employee will have been continuously employed
Redundancy Guide
for two years and so be eligible for statutory redundancy pay, you should
normally include the notice period.

The payment is made from the resources of the employer. There is no
entitlement to a rebate from the Government.

If employees on fixed term contracts have been continuously employed for two
years, they will be entitled to statutory redundancy payments. Furthermore, if
their contract is not renewed or extended, then this is considered to be a
dismissal and the employer must show that the dismissal was for a fair reason -
such as redundancy - and that the process of dismissal was fair – i.e. a fair
redundancy process as outlined in this guide.

For each year of service up to a maximum of 20 years, eligible employees are
entitled to:

**     for each year of service under the age of 22 - half a week‟s pay;

**     for each year of service at age 22 or over but under 41 - one week‟s pay;

**     for each year of service at age 41 or over – one and a half weeks‟ pay

A WEEK'S PAY: Is the amount an employee is entitled to receive under her/his
contract at the "calculation date", i.e. the date on which the employer gives the
employee the minimum notice to which s/he is legally entitled. If the weekly pay
varies, an average pay over the 12 weeks before the “calculation date” is used.

An employee who is aged 28 at the date of termination of employment and who
earns £390 per week and has worked in the organisation for 3 1/2 years will be
entitled to a redundancy payment of

3 (full years' service) x £380 (maximum weekly           =   £1,140
                          pay for year from 1/10/09)

An employee who is aged 44 at the date of termination of employment and who
earns £150 per week and has been continuously employed for five whole years

3 years (when over 41) x 1 1/2 x £150 (a week's pay)         £675
2 years (when under 41) x £150                               £300

                                                 TOTAL       £975

The maximum amount payable, from October 2009 is £11,400 based on the
upper limit (2009 figure) of £380 per week x 20 qualifying years x 1 1/2 weeks.
The limit can be raised by the Secretary of State and the limits are normally
reviewed annually (next increase expected February 2011).

Each employee must be given a written statement showing how the employer
arrived at the total redundancy pay.
Redundancy Guide
If the employer is insolvent, the Department of Business, Innovation and Skills
(BIS) can make the payment and attempt to recover the costs from the business
assets. If the employer has serious cash-flow problems, arrangements can be
made for the BIS to make the payment, but the employer is expected to pay this
amount back as soon as possible, if necessary in instalments.

Any dispute about an employee's redundancy payment, may be referred to an
Employment Tribunal. This can be done at any time, but the right to a payment
may be lost if certain steps are not taken within six months of the date the
employee's job ended.

As can be seen in the examples above, Statutory Redundancy Payments can be
small. Many contracts of employment will provide for larger payments to be
made to employees in the event of a redundancy. An employer should check
what the statement of terms and conditions of employment states in relation to
redundancy payments. Contractual redundancy pay is not subject to tax or
national insurance if the payment is no more than £30,000 in total.

Ex-gratia payments are payments that employers are under no obligation to
make and employees do not expect to receive. If the contract of employment
does not allow for redundancy payments over and above the statutory minimum,
employers can still give ex-gratia redundancy payments to staff. However
employers must take into account the financial assets and liabilities of the
organisation when considering whether ex-gratia payments are possible. In
addition they should recognise that having been made once, a precedent may
have been set and the ex-gratia payment may become a contractual entitlement
for others in the future.

If employees have not taken the paid holiday to which they are entitled by the
date their employment terminates then they should receive holiday pay.

You are advised to contact the District Tax Office with which you usually deal to
discuss whether payments will be subject to deductions for income tax and
national insurance. You can also speak to the HM Revenue & Customs
Employers‟ Helpline on 08457 143 143. Employers can also contact The
Insolvency Service (part of the Department for Business, Innovation and Skills)
on 0845 145 0004 about redundancy and insolvency payments, more details at

The situation will generally be as follows:-

1.     Statutory Redundancy Payments are not subject to tax or national

2.     Contractual redundancy payments would normally only be liable to tax and
       national insurance deductions on any amount above £30,000. If in any
Redundancy Guide
       doubt you should approach your the District Tax Office for a ruling in each

3.     Ex-gratia payments, under £30,000 can usually be made free of income
       tax and national insurance, provided the employee has been in service for
       over two years, the payments are made to all employees entitled to
       redundancy pay, the payments are not excessively large and it is a genuine
       redundancy situation. Check with the District Tax Office.

4.     Payments in Lieu of Notice, (See Section 3.D.) will not be subject to tax
       and national insurance where it has not been possible to give the
       employees proper notice of their employment ending. However the
       payment may be subject to tax and national insurance if the employee's
       contract of employment states that a cash sum will be paid. Check with
       the District Tax Office.

5.     Holiday Pay should be treated as a normal salary payment and is subject to
       tax and national insurance.

Redundancy Guide

      Call a Management Committee meeting immediately and persuade all the
       members to attend. Explain that it is essential that they are there, not only
       for the sake of the employees and the service users, but to safeguard their
       own interests and to avoid becoming personally liable for the organisation's


      Select enough Management Committee members to take responsibility for
       closing down the organisation and divide up the tasks among them.
       Arrange for them to meet regularly.

      Keep a written record of all decisions and actions taken throughout the
       closing down period. This will help to protect those taking the decisions.

      Determine whether the organisation is still SOLVENT OR INSOLVENT. If the
       organisation does not have the ability to pay its debts as they fall due, then
       the organisation is insolvent AND MUST STOP ALL ACTIVITIES IMMEDIATELY
       (see section 4.B. below).

      If the organisation is still solvent, examine the organisation's ASSETS AND
       LIABILITIES to determine when it should close. Take into account the
       additional costs of closure. These include:- legal and financial advice, legal
       fees, redundancy/holiday/maternity pay, rent for the remaining period of a
       lease on equipment or premises. See "PREMISES" and "EQUIPMENT" below.

      Check the LEGAL STRUCTURE of the organisation as this will affect how it
       should be closed down.

          Is the organisation registered as a company limited by guarantee or as
           an industrial and provident society? If it is, the organisation must follow
           the correct legal processes for winding up.
          Is the organisation a registered charity? If so, seek advice from the
           Charity Commissioners.

      Check the CONSTITUTION to see how FORMAL decisions about closing down
       should be made. The procedure would probably involve a resolution to be
       passed at a general meeting agreeing to the dissolution. Also check whether
       there are restrictions on how assets can be distributed if the organisation is
       solvent. For example, a registered charity can only dispose of its assets to
       another charity.

      Seek advice from your PROFESSIONAL ADVISORS:- accountant, solicitor,
       bank manager, auditors, etc. They must, at the very least, be told of the
       decision to close.

Redundancy Guide
      Let everybody else who has an interest in the organisation know that you
       have decided to close and whether you are insolvent:- members who are not
       attending meetings; funders; creditors (people to whom the organisation
       owes money); service users.

      PREMISES - If the organisation rents premises check the terms of the lease
       or licence immediately, taking the advice of a professional legal advisor
       where possible. You need to find out:-

          whether clauses in the lease restrict the options open to the management
           committee, e.g. whether the leases can be surrendered early in the event
           of the organisation being wound up, or sub-let to another tenant.

          what extra costs may be involved in withdrawing from the lease/licence,
           e.g. will rent have to be paid for a period beyond the date of closure; will
           the premises have to be decorated before the organisation leaves.

          Get advice before negotiating with a landlord.

      EQUIPMENT - The organisation needs to consider how to dispose of its
       equipment. The options will depend on whether the group is solvent. There
       may also be hidden costs that must be met out of the organisation's assets.

          Establish exactly which items, such as photocopiers, telephone systems,
           are owned by the group or are actually owned by others such as funders;
           credit or hire purchase companies; or rented. Conditions of grant aid
           may state that equipment bought with grant aid must be returned to the
           local authority in the event of closure.

          Check the terms of agreements on equipment that have been bought on
           credit/hire purchase or rented. Your organisation could be liable for the
           rent for the whole period of the agreement.

          Seek advice before negotiating with credit/hire purchase/rental


Stop all activities immediately. Do not interfere with any assets - this means that
money in the bank, cash, equipment, should not be touched. Do not even pay
money to employees or other creditors (i.e. the people to whom you owe money).
However, continue to collect any money which is owed to the organisation.

Take legal advice immediately about winding up the organisation. Winding up is a
legal process for incorporated organisations such as companies limited by
guarantee, whereby the group is dissolved, its property is administered for the
benefit of its creditors and any surplus is administered according to the Companies
Act. The legal process will involve appointing a liquidator who will disperse the
assets to the creditors according to a strict order of priority.

There is no legal procedure for winding up the assets of an unincorporated
organisation but such a group should try as far as possible to use the procedure
for companies.
Redundancy Guide
Some voluntary organisations do have a formal redundancy procedure agreed
with the trade unions and employees. Some of these appear in staff handbooks,
or even in employees' statements of terms and conditions of employment.

Management Committees may find that having a formal redundancy procedure
gives them a greater understanding of their responsibilities; a framework in
which to proceed when faced with potential redundancies; and reduces
misunderstandings and conflict. Employees may feel a formal redundancy
procedure will increase the likelihood that redundancies will be dealt with fairly
and consistently.

Management committees, which do not have a redundancy agreement to refer
to, will have to make it up as they go along and may wish that they had
considered, in quieter times, how they should handle redundancies. Once the
present reductions in grant aid are past and there is a period of relative stability,
management committees should draw up a procedure, involving employees and
the trade unions, which can be used if further redundancies become necessary.

The PEACe Model Redundancy Policy or Agreement can be downloaded from the
LVSC website at; or obtained by contacting PEACe,
see below. The ACAS booklet, "Redundancy Handling" (see section 6.) also
suggests the contents of a redundancy procedure for even the smallest

Redundancy Guide


**     from PEACe – LVSC‟s Personnel Employment Advice and Conciliation
       Service. Phone the Helpline on 0203 349 8921 Monday, Tuesday,
       Wednesday and Thursday; email; write to us at PEACe
       at LVSC, 4th Floor, Shelter, 88 Old Street, London EC1V 9HU.

**     ACAS runs a free telephone advice service to employers and employees on
       all aspects of employment legislation on 08457 47 47 47; Textphone users
       08456 06 16 00.


**     From the Advisory, Conciliation and Arbitration Service (ACAS)
       "Redundancy Handling", £3.95 to order phone 08702 42 90 90; fax 020
       8867 3225; or email You can download the
       publication free of charge from the ACAS website:

**     From Department for Business, Innovation & Skills

**     From the Directory of Social Change
       “Voluntary Sector Legal Handbook”, £60 (for voluntary organisations
       To order see Sandy Adirondack‟s website at http://www.sandy- ; or DSC 08450 777707; fax 020 7391 4804; order
       online at; email; or write to Publications Department, 24
       Stephenson Way, London NW1 2DP

**     From Labour Research Department
       “Redundancy – a trade unionists‟ guide to the law and best practice” £5.25
       To order from LRD, 78 Blackfriars Road, London SE1 8HF. Tel: 020 7928
       3649; Fax: 020 7902 9815; email; or order online at


**     Contact your District Tax Office with which you usually deal to discuss
       whether payments will be subject to deductions for income tax and national

**     HM Revenue & Customs Employers‟ helpline on 08457 143 143.


**     The Insolvency Service, part of Department for Business, Innovations and
       Skills (BIS) Helpline on 0845 145 0004.

Redundancy Guide
This is an example of the sort of letter that could be used and would
inevitably have to be altered to fit the circumstances of each situation.

It is representative of the type of letter that would be issued at the
beginning of the consultation period, before a final decision on redundancy
has been made.


Dear A N Other

I am extremely sorry to have to let you know that, following a substantial reduction
in our grant aid the Management Committee of XYZ are considering making the post
of…………… redundant.

A total of …… posts are affected.

The posts have been selected for potential redundancy because they are directly
funded by the grant aid that is to be cut. The project will not be able to continue
without this funding remaining in place.

We are considering all possible ways of avoiding redundancy including, if we are
able, to offer you a suitable alternative job. The next step is to consult with you, to
listen to any alternative proposals, suggestions or comments you might want to

We would like to invite you to a consultation meeting about your potential
redundancy. The meeting will be with …………… and will take place at……….. You can
bring a trade union representative or work colleague with you to this meeting. The
suggested date for the meeting is………………………. Please let me know if this is
possible for you within 5 days of the date of this letter.

Following this consultation meeting, you will be invited to a second meeting which
will take place at least 2 weeks after the first meeting. Again you can bring a union
representative or work colleague with you.

This second meeting may bring the consultation period to a close and a decision will
be made as to whether or not the redundancy will go ahead.

If you have any queries or need help or support, please do speak to ………., your
trade union representative or me.

Yours sincerely

On behalf of the Management Committee
  Redundancy Guide
This is an example of the sort of letter that could be used and would
inevitably have to be altered to fit the circumstances of each situation.

It is representative of the type of letter that would be issued after the
consultation period has been completed has taken place.

The employer must give a reasonable length of time (such as 10 working
days) for the affected employee to let them know if they want to appeal.

Date …………

Dear A N Other

I am extremely sorry to have to tell you that, following a substantial reduction in our
grant aid and a subsequent period of consultation, the Management Committee of
XYZ have decided to make the post of ....................... redundant.

As the Management Committee of XYZ is unable to offer you any suitable alternative
employment, we are hereby giving you notice that your employment with XYZ will
terminate on …………

Under your contract of employment you are entitled to………….. [e.g. one months‟

You are entitled to take reasonable time off during your notice period to undertake
training or seek work.

On your last day of employment you will receive a cheque for the following amount:-

[Example calculations]
Statutory Redundancy Pay:
4 years x £380 (one week‟s pay       £1,520
  statutory entitlement from Oct 09)

                          TOTAL:       £1,520

Redundancy pay will not be subject to income tax or national insurance

In addition you will receive at the end of ……………, paid into your bank account in the
normal way, any holiday pay or salary payments owing to you, which will have
income tax and national insurance contributions deducted.

You have a right to appeal against the decision to make the post redundant. Please
let me know if you wish to appeal within…………days.
  Redundancy Guide
The Management Committee of XYZ would like to wish you well for the future and to
thank you for the contribution you have made during your employment.

Yours sincerely

On behalf of the Management Committee

  Redundancy Guide
If after considering the contents of this document, getting advice from PEACe,
you have found it necessary to modify your existing procedures for handling
dismissal, disciplinary and grievance procedures, you must by law inform your

For further advice & guidance, contact PEACe on 0203 349 8921,
Mondays, Tuesdays, Wednesdays & Thursdays.

PEACe, October 2009
LVSC’s Personnel, Employment Advice and Conciliation Service

The material in this document does not give a full statement of the
law, nor does it reflect changes after October 2009. It is intended for
guidance only and is not a substitute for professional advice. No
responsibility for loss occasioned as a result of any person acting or
refraining from acting on the basis of this material can be accepted by
the author or by LVSC.

Redundancy Guide

To top