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What is the difference between voluntary and compulsory redundancy?

Difference Between Voluntary And Compulsory Redundancy

There are two different types of redundancy process in the UK, both of which ultimately involve the termination of an employee’s contract. Different processes are implemented, however, and outcomes with regard to redundancy pay can be different.

There are numerous reasons why you may need to consider staff redundancies – perhaps you’ve invested in technology and some employee roles are no longer required, for instance, or you may be forced to restructure to escape insolvency.

Whatever the reason, if you’re considering making redundancies in your firm you can choose to offer a voluntary redundancy package before making compulsory redundancies, so what are the main differences between the two?

Reasons for redundancies

When a company downsizes its personnel, whether due to financial difficulty and the threat of liquidation, or simply to take a different path in business, redundancy can be used to achieve its aims.

In some cases making redundancies compulsory may be the only option – where businesses are to be liquidated, for example – but in other situations voluntary redundancy packages could be offered to members of staff as an alternative method of streamlining the business.

This may or may not lead to compulsory redundancies at a later stage, but it can be a good way to reduce your payroll liabilities if some staff are willing and financially able to take up your offer.

Level of redundancy pay

Voluntary redundancy packages typically offer more in terms of financial compensation to employees than compulsory redundancy. Statutory redundancy pay is calculated using pre-determined parameters and limits set by the government, but employees need to have worked at your company for at least two years in order to be eligible. A voluntary redundancy package will typically go over and above these limits to incentivise staff and increase interest in your offer.

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Selection methods

Compulsory redundancy involves a defined selection process, initially to determine which job roles will be made redundant, and then to decide the criteria by which staff members will be chosen for potential redundancy.

Voluntary redundancy packages should be offered to the workforce as a whole, prior to narrowing down the list of applicants if necessary, although you must still use fair and transparent criteria in this selection process.

Potential for unfair dismissal/discrimination allegations

Although the potential for unfair dismissal claims or allegations of discrimination still exist, given the nature of voluntary redundancy, it may be less likely than during compulsory redundancies if the reasons are genuine and the process implemented transparently.

In either case, it’s important to document your reasoning for making decisions at every stage, and if too many employees have volunteered, take an objective view when selecting successful applicants.

If you would like more information on voluntary and compulsory redundancy, call one of our expert team at Redundancy Claims UK. We’ll provide professional specialist advice to ensure you understand every aspect of these processes, and undertake the changes needed in your business with confidence. We offer a free same-day consultation with one of our partner-led team.

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