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UK redundancy law explained
UK redundancy law: Process, pay, and employer obligations
Redundancy is a form of dismissal under UK law. It happens when an employer needs to reduce their workforce because a role is no longer needed, the business is closing, or the workplace is shutting down. It is not the same as firing someone for poor performance or misconduct.
If you employ people in the UK, you must follow a fair redundancy process. Getting it wrong can lead to unfair dismissal claims at an employment tribunal.
This guide covers the legal framework, pay calculations, consultation requirements, and how an Employer of Record manages redundancy on behalf of international companies.
What is redundancy under UK law?
The Employment Rights Act 1996 (ERA 1996), Section 139, defines redundancy as dismissal caused by:
- The employer ceasing to carry on business
- The employer ceasing to carry on business at the employee's workplace
- A diminished need for employees to do work of a particular kind
The third reason is the most common. It covers situations where technology replaces roles, the workload drops, or the business restructures.
Redundancy is always about the role, not the person. You cannot make someone redundant because of their performance or behaviour. That would be a disciplinary matter, not a redundancy.
Who qualifies for statutory redundancy pay?
To qualify for statutory redundancy pay, an employee must have at least two years of continuous service with the same employer. The employee must also be dismissed by reason of redundancy, not resign voluntarily.
Workers, agency staff, and people on fixed-term contracts that expire naturally generally do not qualify. Self-employed contractors are also excluded.
The two-year rule is strict. Even one day short of two years means the employee has no statutory right to redundancy pay, although they may still be entitled to notice and other protections.
For the 2025/26 tax year, the weekly pay cap was £719. For dismissals on or after 6 April 2026 (2026/27), it is £751, making the maximum statutory redundancy payment £22,530. Any earnings above this cap are ignored in the calculation.
Worked example:
An employee aged 45 with 12 years of service earns £800 per week.
- 4 years aged 41 and over at 1.5 weeks = 6 weeks; 8 years aged 22 to 40 at 1 week = 8 weeks; total 14 weeks
- Weekly pay capped at £751
- Statutory redundancy pay: 14 × £751 = £10,514
The statutory minimum is a floor, not a ceiling. Many employers offer enhanced redundancy packages, especially in sectors with collective agreements or when contractual terms promise more generous pay.
What is a fair redundancy process?
Employment tribunals expect employers to follow a fair process. The key elements are:
You must use objective, measurable criteria to select who is made redundant. Common criteria include skills, qualifications, performance record, attendance, and disciplinary history. You must not select based on protected characteristics (age, sex, disability, race, pregnancy, etc.) or for exercising a statutory right.
Every affected employee must have a meaningful consultation meeting. You must explain why the redundancy is happening, how the selection criteria were applied, and consider any alternatives the employee suggests. The employee has the right to be accompanied by a colleague or trade union representative.
You must define a fair pool of employees from which selections are made. The pool should include everyone doing work of a particular kind. Narrowing the pool unfairly (for example, to target one person) is a common reason tribunals find redundancy unfair.
Employees should have the right to appeal the redundancy decision. A failure to offer an appeal process is not automatically unfair, but it strengthens any tribunal claim.
How does an EOR handle redundancy for international employers?
When you hire UK staff through an Employer of Record, the EOR is the legal employer. This means the EOR carries the redundancy obligations, not you.
Here is how it works:
Process management: The EOR runs the full redundancy process, including defining the pool, applying selection criteria, conducting consultation meetings, and issuing notices. They ensure every step meets the ERA 1996 requirements.
Statutory pay calculations: The EOR calculates statutory redundancy pay using the correct thresholds and caps. If you are offering an enhanced package, the EOR structures it compliantly.
Funding: You fund the redundancy costs as part of the EOR agreement. The EOR makes the payments to the employee and handles the tax and National Insurance implications.
Documentation: The EOR produces all required paperwork, including redundancy letters, consultation records, settlement agreements (if applicable), and references.
Risk mitigation: Because the EOR is the legal employer, the redundancy risk sits with them. They carry the employment tribunal exposure and manage any claims. This is a significant advantage for international companies unfamiliar with UK employment law.
The EOR approach means you can make a difficult business decision without navigating a foreign legal system alone. The process is handled correctly, the employee is treated fairly, and you stay compliant.
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Frequently asked questions
No. Redundancy is about the role disappearing or diminishing, not about the person. If the role still exists and you want to remove the employee, you need a different process, such as capability or disciplinary proceedings.
Yes. You must take reasonable steps to find suitable alternative employment within the organisation. If a suitable role exists and you do not offer it, the redundancy may be found unfair. The employee has the right to a four-week trial period in any alternative role.
Voluntary redundancy is when employees are invited to apply for redundancy, often with an enhanced package. Compulsory redundancy is when the employer selects individuals. Most employers try voluntary first to reduce the number of compulsory redundancies.
You can, but you must follow strict rules. You must offer a suitable alternative vacancy if one exists. You cannot select someone for redundancy because of pregnancy, maternity leave, or any other protected characteristic.
The redundancy costs, including statutory pay, notice pay, and any enhanced package, are passed through to you as the client. The EOR calculates the correct amounts, makes the payments, and handles all tax and reporting obligations.