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Guide to voluntary redundancy

Voluntary redundancy occurs when an employer offers a financial incentive for employees to leave a company voluntarily, to save on the formal selection procedures that are involved in compulsory redundancies. Many individuals who have ever experienced compulsory redundancy would consider voluntary redundancy a luxurious option as it often comes with an option of either staying in the job on different terms or accepting a sum of money (usually in excess of standard redundancy payment) and leaving. Voluntary redundancy still involves a dismissal and as such operates under the same as compulsory redundancy. An alternative to voluntary dismissal could be an early retirement incentive.

What is the purpose of voluntary redundancy?

Voluntary redundancy is generally less stressful for the employees as it involves an option to leave rather than compulsion and the feeling of being forced out.

Voluntary redundancy is to certain extent discretionary as companies are allowed to contractually restrict some employees from being able to apply for a voluntary redundancy. Voluntary redundancies typically involve more senior staff members who after serving a company for a number of years have the option of leaving the company with a good pay out. Since more senior members are usually managers and team leaders, the process of voluntary redundancy helps to minimise the impact on less senior staff members’ morale.

What are the advantages and disadvantages of voluntary redundancy?

As mentioned above the most beneficial feature of voluntary redundancy is that it is less damaging and demoralising process than compulsory dismissals, as it helps to identify those who are willing to leave and saves those would otherwise be forced to leave against their wishes.

From company’s point of view, voluntary redundancy could be an expensive option as it will very likely involve higher pay outs than the statutory redundancy payments.

For more information on this topic you can also refer to the Business Link website’s redundancy selection topic.

How does it work in practice?

Under the Employment Rights Act 1996, voluntary redundancy is classified as dismissal. Consequently, despite the fact that employees themselves voluntarily resign the applicable employment law rules are exactly the same as for compulsory redundancy. Therefore, to be fully compliant with the employment laws you must ensure that voluntarily resigning employees are given the same rights as if they were going through the compulsory procedure.

Consultations

All those offered the opportunity to apply for a voluntary redundancy should be individually consulted and advised of their redundancy rights. The advice should include the following information:

  • how their position would be affected;
  • how the redundancy would be implemented;
  • the financial incentive offered or lack thereof;
  • any other relevant information, such as notice periods.

During the consultations, employees should be allowed to freely ask questions and make comments. This is often less difficult than in the case of those being compulsorily dismissed.

The first £30,000.00 of your redundancy pay package is free from tax.

The Statutory Redundancy Pay

If the company decides not to offer extra financial incentive for voluntary resignations then statutory redundancy pay should be calculated taking into account the employee’s length of service, age and the rate of their pay.

As mentioned above, the statutory redundancy pay depends on your length of service, your age and your weekly pay – up to a limit of £330 (£350 from 1 February 2009).

Minimum redundancy pay entitlements are as follows:

  • Half a week’s pay for each complete year of service below the age of 22;
  • One week’s pay for each year between 22 and 40; and
  • One and a half week’s pay for each year above the age of 41.

For more detailed information on your statutory redundancy entitlements please visit the Official Government website.

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