Making someone redundant is the hardest decision a small business owner faces, and the one where a rushed process costs the most. The law does not stop you from cutting a role that is no longer needed, but it tests how you did it: was the job genuinely going, was the person chosen fairly, and were they consulted first? A small employer who takes three or four weeks to do it properly is in a strong position.
This guide walks through the process in order, using the 2026/27 rates and the January 2027 law changes.
Is it actually redundancy?
Redundancy has a specific legal meaning: the business closes, the workplace closes, or the need for employees to do work of a particular kind has ceased or diminished. That is different from dismissing someone for poor performance or misconduct, and using redundancy as a cover for either is one of the fastest routes to an unfair dismissal claim.
Before you start, write the business reason down in two or three sentences: falling sales, a lost contract, a site closure, or a restructure. Then consider the alternatives and record that you did: voluntary redundancy, reduced hours, a pay freeze, or redeployment. Our guide to employing staff for the first time sets out the hiring duties at the other end of this process.
The redundancy process step by step
1. Plan before you say a word
Decide which roles are affected and whether you need a selection pool: the group doing the kind of work that is diminishing, including anyone whose role is interchangeable with it. If only one person does the job and the job is going, the pool is one person, but you still have to consult them. Take notes at every meeting.
2. Invite volunteers first
Asking for volunteers is not a legal requirement, but it often avoids compulsory selection altogether. Be clear about the terms, usually statutory pay plus any enhancement, and set a short deadline. Volunteers must genuinely be in the affected pool.
3. Set objective selection criteria
Where more than one person does the same work, use criteria that are objective, measurable and applied consistently: skills and qualifications for the remaining work, performance evidenced by appraisals, live disciplinary warnings only, and attendance. Score each person in the pool, ideally with two people scoring independently. Never use age, sex, race, disability, pregnancy or trade union membership, and never use length of service on its own: “last in, first out” can indirectly discriminate by age. Exclude pregnancy-related absence, disability-related absence and family leave from attendance scoring. Show each employee their own scores and let them challenge them. Our guide to essential HR policies for UK small businesses covers the policies that back up fair selection.
4. Consult properly, and mean it
Consultation must happen before the decision is made, not after. For fewer than 20 redundancies there is no fixed statutory period, but it must be genuine: the employee gets the business reason, the pool, the criteria and their scores, enough time to respond, and a real chance to change the outcome. In practice that means at least two meetings per person over two to three weeks. Do not issue a final decision until the second meeting has happened.
5. Offer suitable alternative employment
Before confirming any redundancy, check every vacancy in the business, including roles at other sites and part-time or lower-paid roles, and offer any suitable one. Whether a role is suitable usually depends on pay, hours, location and skills needed. An employee can refuse a role they reasonably believe is unsuitable without losing their redundancy pay. If they accept, they get a four-week trial period, extendable in writing if training is needed. If the role turns out to be unsuitable, they can leave during the trial and keep their redundancy pay. The new role must start within four weeks of the old role ending. When someone moves into a new role, the checks in our new-starter legal compliance checklist still apply.
6. Confirm the outcome in writing
The final letter confirms the decision, the last day of employment, the notice period, the pay calculation, any outstanding holiday pay, and the right to appeal. Give a short window to appeal, usually five working days. Keep copies of every letter, score sheet and meeting note for at least six years.
Individual or collective consultation: which rules apply
The rules change sharply at twenty redundancies: get this threshold wrong and the whole process is unlawful, however fair the individual meetings were.
| Situation | Consultation | Minimum period before first dismissal | Extra duty |
|---|---|---|---|
| Fewer than 20 redundancies at one establishment in 90 days | Individual, with each affected employee | None set by law, but it must be genuine | None |
| 20 to 99 redundancies | Collective, with a recognised union or elected employee representatives | 30 days | Notify the Insolvency Service on form HR1 |
| 100 or more redundancies | Collective, with a recognised union or elected employee representatives | 45 days | Notify the Insolvency Service on form HR1 |
Count carefully: the 90-day window counts all proposed redundancies at one establishment, so two small rounds close together can add up to twenty.
How statutory redundancy pay works
Employees with two or more years of continuous service are entitled to statutory redundancy pay. The amount depends on age, length of service and weekly pay, with caps that change every April. For 2026/27 the weekly pay cap is £751, so the maximum payment is £22,530.
The multipliers are half a week’s pay for each complete year of service while aged under 22, one week’s pay for each year aged 22 to 40, and one and a half weeks’ pay for each year aged 41 or over. Only the most recent 20 years of service count. The first £30,000 of redundancy pay is tax-free.
| Employee | Calculation | Statutory pay |
|---|---|---|
| 28 years old, 4 years service, £600 a week | 4 years at 1 week = 4 weeks x £600 | £2,400 |
| 45 years old, 12 years service, £900 a week | 8 years at 1 week + 4 years at 1.5 weeks = 14 weeks x £751 (capped) | £10,514 |
| 61 years old, 20+ years service, £1,100 a week | 20 years at 1.5 weeks = 30 weeks x £751 (capped) | £22,530 (the maximum) |
| 20 years old, 3 years service, £450 a week | 3 years at 0.5 weeks = 1.5 weeks x £450 | £675 |
Check your figures on the free GOV.UK redundancy pay calculator before you put them in the final letter.
Notice periods and time off to look for work
Statutory minimum notice depends on length of service, and the contract may give more. Pay in lieu of notice needs the contract to allow it or the employee to agree.
| Length of service | Minimum statutory notice |
|---|---|
| 1 month to 2 years | 1 week |
| 2 to 12 years | 1 week for each year of service |
| 12 years or more | 12 weeks |
Employees with two or more years of service also have a right to reasonable paid time off during their notice period to look for new work or arrange training. The catch is the pay cap: you do not have to pay more than 40% of a week’s pay for that time off, however many days they take. Agree the days in advance. Our statutory sick pay employer guide sets out the 2026/27 rules, including the £123.25 weekly rate.
What changed in 2026, and what changes in 2027
Three changes already apply, and two more land in January 2027. The January changes matter now, because the effective date of termination governs, not the date notice is given.
From 6 April 2026, the protective award for failing to consult collectively doubled from 90 to 180 days’ gross pay per affected employee. From 1 October 2026, the tribunal time limit doubled from three to six months. From 1 January 2027, the qualifying period for ordinary unfair dismissal falls from two years to six months, and the cap on the compensatory award is removed altogether, so an employee with seven months of service will then be able to claim. The fire and rehire restrictions, on dismissing staff who refuse changes to pay, hours or other core terms, are now scheduled for March 2027.
The mistakes that lead to tribunal claims
Most redundancy claims come from the same handful of errors. The decision was announced before consultation, so the meetings were a formality. The criteria were vague, applied inconsistently, or based on a manager’s opinion rather than evidence. Attendance scoring counted pregnancy-related or disability-related absence. The employee was never shown their scores. No alternative roles were offered.
Two groups need extra care. Employees who are pregnant or on maternity, adoption or shared parental leave have priority for suitable alternative vacancies, so check the current rules before finalising any selection that touches them. Before any tribunal claim, the employee must go through ACAS early conciliation, where many claims settle for less than a hearing costs.
Before you start: the checklist
Write the business reason in two sentences. Check the alternatives and record them. Define the pool and set objective criteria. Score the pool, with two scorers where possible. Issue at-risk letters and hold at least two consultation meetings per person. Offer suitable alternative roles and allow the four-week trial. Calculate pay on the GOV.UK calculator, confirm notice in writing, and give a right of appeal.
Redundancy done well is still painful, but it is defensible, and the people who stay can see that the process was fair.
This guide is general information, not legal advice. For a collective redundancy, a pregnant employee, or any case where discrimination could be alleged, speak to an employment solicitor before you issue the first letter.