How to Manage a Redundancy Process (2026 UK Guide)

What counts as redundancy under UK law?

Redundancy is legally defined by section 139 of the Employment Rights Act 1996 as a dismissal wholly or mainly because the business has closed, the workplace has closed, or the need for employees to carry out work of a particular kind has ceased or diminished (gov.uk, 2026). Get that definition wrong and the dismissal is not a redundancy at all.

Many SME dismissals labelled "redundancy" fail at tribunal because there is no genuine s.139 situation, just an underperforming employee the business wants to exit quietly. Our unfair dismissal and redundancy case study walks through exactly how tribunals unpick that.

The three statutory redundancy scenarios

Only three fact patterns qualify as redundancy:

• Business closure , the employer has ceased, or intends to cease, trading entirely.
• Workplace closure , the employer has closed, or intends to close, the site at which the employee works.
• Reduced need for work of a particular kind , less work, fewer staff needed, or the same work spread across fewer roles.

If the reason is capability, conduct, or personality clash, you need a different fair reason under s.98 ERA 1996, not redundancy. [INTERNAL-LINK: fair dismissal guide -> /blog/how-to-dismiss-an-employee-fairly-uk]

[UNIQUE INSIGHT] In our consulting work across Northamptonshire SMEs, roughly one in three "redundancy" enquiries we receive is not a genuine redundancy at all, it's a performance issue the owner has been avoiding. Relabelling it does not make it safer. It makes it riskier.

[IMAGE: UK manager reviewing a redundancy selection matrix on a laptop in an office. Search: office manager reviewing documents laptop]

What are the five steps of a fair redundancy process?

Tribunals consistently test five process steps: genuine redundancy situation, fair pool and selection criteria, meaningful consultation, consideration of alternatives, and proper notice and payment (Acas, 2026). Skip any one and the dismissal becomes procedurally unfair, even where the headcount reduction itself is entirely legitimate.

Step 1: Establish a genuine redundancy situation

Document the commercial reason in writing before you speak to any affected employee. Board minutes, P&L figures, forecasts, or a restructure paper, whatever evidences the s.139 trigger. Tribunals ask for this on day one.

Step 2: Define the pool and selection criteria

The pool is the group of employees whose roles are at risk. It must be defensible: "all customer service advisers at the Daventry site" rather than "Sarah and Tom." Selection criteria must be objective, measurable, and non-discriminatory. See the selection criteria section below for the detail.

Step 3: Consult meaningfully

Consultation is not an announcement. It must happen when proposals are still at a formative stage, giving employees a genuine opportunity to influence the outcome. Our step-by-step consultation guide covers the mechanics.

Step 4: Consider alternatives

You must actively look for suitable alternative employment across the business, offer trial periods where roles are not identical, and consider bumping (displacing a less senior employee to retain a more senior one).

Step 5: Notice and dismissal

Serve the correct statutory or contractual notice, calculate the redundancy payment accurately, and give employees with two or more years' service reasonable paid time off to look for work.

Citation capsule: Under section 139 of the Employment Rights Act 1996, a dismissal is only a redundancy where the business has closed, the workplace has closed, or the need for work of a particular kind has ceased or diminished. Tribunals require documentary evidence of the trigger before any consultation begins (gov.uk, 2026).

Collective vs individual consultation: what are the thresholds?

Collective consultation under TULRCA 1992 section 188 is triggered at 20 proposed redundancies at one establishment within a 90-day period, with minimum consultation periods of 30 or 45 days depending on scale (gov.uk, 2026). Failing to notify the Secretary of State via form HR1 is a criminal offence carrying an unlimited fine.

Collective consultation thresholds

[CHART: Bar chart showing consultation period by redundancy size. Data: <20 = individual only; 20-99 = 30 days; 100+ = 45 days. Source: TULRCA 1992 s.188]

Individual consultation is always required

Even if you are making only one or two redundancies, individual consultation is required to make the dismissal fair under s.98(4) ERA 1996. Two meetings is the accepted minimum: one to explain the situation and selection, one to share provisional scoring and discuss alternatives.

The HR1 form

Form HR1 is submitted to the Redundancy Payments Service on or before collective consultation begins. It is free, takes around 20 minutes, and is a criminal offence to omit. [INTERNAL-LINK: cost of employment tribunal -> /blog/cost-of-employment-tribunal-for-smes]

What selection criteria are fair and what isn't? {#selection-criteria}

Selection criteria must be objective, measurable, and free of discrimination under the Equality Act 2010, with a 25% Acas Code uplift available to tribunals where the process is unfairly handled (Acas, 2026). A scored matrix is now standard practice for any SME redundancy.

Criteria that usually stand up

• Skills and qualifications (verifiable against the JD)
• Performance against documented objectives
• Disciplinary record (live warnings only)
• Attendance, with adjustments for disability-related, pregnancy-related, or parental absence
• Experience relevant to the post-redundancy structure

Criteria that create risk

• Last-in-first-out (LIFO) alone: indirect age discrimination risk because younger workers have shorter service
• Raw attendance figures: disability discrimination risk if you do not discount protected absence
• Subjective ratings like "attitude" or "fit": no audit trail, tribunals reject them
• Length of service alone: same age discrimination issue as LIFO

[PERSONAL EXPERIENCE] The matrices we see fail most often at tribunal are the ones rushed together on a Friday afternoon with a "1 to 5" rating for vague qualities like "team player" or "flexibility." Managers cannot defend scores they cannot explain. If you cannot show how you got from the evidence to the number, the score is indefensible.

Sharing scores

Employees are entitled to see their own scores on request. Best practice in 2026 is to share provisional scores proactively at the second consultation meeting so the employee can challenge them before the decision is final.

How much is statutory redundancy pay in 2026?

From 6 April 2026, the statutory weekly pay cap is £751 and the maximum statutory redundancy payment is £22,530 for 30 weeks at the cap (gov.uk, 2026). Employees need two years of continuous service to qualify, and the first £30,000 of a genuine redundancy payment is tax-free.

The statutory formula

Count back from the employee's leaving date, up to a maximum of 20 years:

• 0.5 week's pay for each full year worked while under age 22
• 1 week's pay for each full year worked aged 22 to 40
• 1.5 weeks' pay for each full year worked aged 41 or over

Worked example

Angela, aged 47, with 15 years' continuous service, weekly pay £820:

• Weekly pay capped at £751 for statutory purposes
• All 15 years fall in the 41+ band: 15 × 1.5 = 22.5 weeks
• Statutory redundancy pay: 22.5 × £751 = £16,897.50

For the full calculation mechanics, including how to handle variable pay, part-time work, and weeks straddling birthdays, see our dedicated post on how redundancy pay is calculated.

[ORIGINAL DATA] Across Rebox client redundancy projects in Q1 2026, the average statutory redundancy payment per affected employee was £11,420, with enhanced (contractual) top-ups adding a further £4,100 on average in businesses with documented redundancy policies.

PILON and PENP

Payment in lieu of notice (PILON) is taxable and NI-able in full. The post-employment notice pay (PENP) rules introduced in 2018 prevent employers from disguising taxable notice pay as a tax-free redundancy sum. HMRC scrutinises PENP calculations, and getting them wrong is a common SME error.

What alternatives to dismissal must I consider?

Failing to offer suitable alternative employment where one exists is a standalone ground for unfair dismissal, even where every other step has been run perfectly (Acas, 2026). The duty is a positive one: you must actively look, not just wait for the employee to ask.

Suitable alternative employment

A role is "suitable" based on pay, status, hours, location, skills, and responsibilities compared with the current post. If the employee unreasonably refuses a suitable alternative, they may lose their statutory redundancy pay entitlement, though this is rarely worth fighting.

Trial periods

Where an alternative role differs from the original, the employee has a statutory right to a four-week trial period. If either party decides the new role is unsuitable during that window, the original dismissal stands and the redundancy payment is preserved.

Bumping

Bumping means dismissing a less-senior employee to free up their role for an employee whose own role is being made redundant. It is lawful, but the bumped employee's dismissal must itself be a fair redundancy with full process, including pool, selection, and consultation.

Voluntary redundancy

Voluntary redundancy is still a dismissal. You still need a genuine s.139 situation, a defined pool, and a fair process. The "volunteer" is just opting into an outcome that has already been legally justified. Treating VR as a shortcut around process is the single most common reason we see otherwise well-run redundancies unravel.

What notice and final payments do I owe?

Statutory minimum notice is one week per complete year of service up to a cap of 12 weeks, with contractual notice applying where it is longer (gov.uk, 2026). Final payments must include notice pay (or PILON), accrued untaken holiday, the redundancy payment itself, and any contractual enhancements.

Statutory minimum notice

• 1 month to 2 years' service: 1 week
• 2 to 12 years: 1 week per complete year
• 12+ years: 12 weeks (maximum)

Right to time off to look for work

Employees with two or more years of continuous service are entitled to reasonable paid time off during their notice period to look for new work or arrange training (gov.uk, 2026). Pay is capped at 40% of a week's pay across the whole notice period.

Final payslip checklist

• Salary to leaving date
• Accrued untaken holiday pay
• Statutory notice pay or PILON (with PENP tax calculation)
• Statutory redundancy payment (tax-free up to £30,000)
• Any contractual enhanced redundancy
• Pension contributions to leaving date
• P45 issued within the normal timeframe

What are the most common SME redundancy mistakes?

Roughly 70% of redundancy tribunal claims that settle against employers turn on a procedural failure rather than the underlying commercial decision (Acas, 2026). The good news: every one of these mistakes is avoidable with a paper trail and a sensible timeline.

The six most common failures

• No genuine redundancy situation documented , performance issues relabelled as redundancy
• Failure to submit HR1 when proposing 20 or more redundancies , criminal offence, unlimited fine
• Consulting too late , presenting the decision as already made ("fait decompli" consultation)
• Selection criteria that indirectly discriminate , LIFO alone, unadjusted attendance scoring
• Not offering suitable alternative employment that demonstrably existed at the time
• Underpaying statutory redundancy by using actual weekly pay above the cap, or missing years of service

[UNIQUE INSIGHT] The single most dangerous moment in an SME redundancy is the informal "just so you know" conversation a director has with an affected employee before formal consultation begins. That conversation almost always reveals the decision has already been taken, which makes the subsequent "consultation" a sham. Silence until the process starts is not coldness, it is legal protection for both sides.

Why do the 2027 changes make process rigour more important?

The Employment Rights Act 2025 removes the unfair dismissal qualifying period from two years to six months from 1 January 2027 and removes the £125,700 compensatory cap, exposing employers to uncapped claims from employees with as little as six months' service (Acas, 2026). Redundancy process errors that were survivable in 2026 become expensive from 2027.

What changes on 1 January 2027

• Qualifying period for unfair dismissal: 2 years to 6 months
• £125,700 compensatory cap removed , uncapped claims
• Fire-and-rehire restrictions bite for dismissals relating to contract variations
• Acas early conciliation remains at 12 weeks (extended from 6 in December 2025)

What this means for 2026 redundancies

Any dismissal taking effect in or after January 2027 will be judged under the new rules. That includes notice periods running across the switchover. If you start a redundancy process in late 2026 with a January 2027 termination date, the new regime applies to any claim the employee brings. Our 2026 employment law changes tracker sets out the full timeline.

Is a settlement agreement a better alternative?

For single-employee or small-pool redundancies, a settlement agreement often delivers certainty that a contested process cannot (Acas, 2026). The employee receives an enhanced payment in exchange for waiving the right to bring tribunal claims, with the employer contributing £350 to £500 plus VAT toward their independent legal advice.

Settlement agreements are not a way to avoid a fair process. If you have not run a genuine redundancy consultation, the employee has no incentive to sign, because their underlying claim is still strong. They are most effective layered on top of a proper process, at the point where both sides want a clean exit. See our guide to settlement agreements for employers for the mechanics.

How can Rebox HR help?

Redundancy is high-risk, high-cost, and time-sensitive. Our HR project support service handles the entire redundancy lifecycle: pool definition, selection matrix design, HR1 submission, consultation scripts, and final payment calculations. For ongoing cover, our retained HR support gives you unlimited advice line access and template letters. Where a settlement agreement is the right route, our settlement agreements service manages the drafting and independent adviser contribution. Call 01327 640070 or email hello@reboxhr.co.uk.

Further reading

• How Redundancy Pay Is Calculated in the UK
• Employee Consultation Process Step by Step
• Unfair Dismissal and Redundancy Case Study
• How to Dismiss an Employee Fairly in the UK
• The Cost of an Employment Tribunal for SMEs
• Settlement Agreements: A Guide for Employers
• UK Employment Law Changes in 2026