Katherine Heffernan | 06 Dec 2021

Over half of employers improve on statutory redundancy terms

The last two years have entailed a great deal of uncertainty for employers and staff alike. Following the end of furlough and the re-opening of the economy, our survey of employers’ redundancy terms looks at the effect of redundancy exercises on the sizes of workforces and what pay-outs staff stand to receive when redundancies arise.

Numbers and causes of redundancies

The majority of the 37 organisations in the sample (70%) have had to make redundancies since January 2020, with a total of 52 separate redundancy exercises having been conducted over this timeframe. At the median, respondents have cut just under 3% of their workforces in redundancy exercises (8.7% on average), with actual proportions of jobs lost ranging from as low as 0.1% to as much as 40%. The manufacturing and primary sector has been least affected, with just a third of employers here reporting job losses.

Restructuring (38%) and, perhaps inevitably, loss of contracts or reduced business (32%) were the most common reasons cited for having to make redundancies, with the same proportion (32%) reporting that COVID and its impact on business had contributed to job losses. Only four respondents – two private services firms and two not-for-profit employers – attributed a significant proportion (between 40% and 100%) of their redundancies to the ending of the Coronavirus Job Retention Scheme.

Redundancies were compulsory in almost three-fifths (58%) of cases but 23% of organisations said they ‘always’ seek to offer voluntary redundancies (and this is ‘sometimes’ an option at a further 65% of respondents). The outlook ahead is somewhat better, with just under a fifth (19%) of organisations anticipating having to make further redundancies in the next 12 months.

Despite the economic uncertainty associated with the pandemic, none of the respondents changed their redundancy terms due to COVID; indeed, one private services company boosted its voluntary severance terms on a one-off basis, to mitigate the number of compulsory job losses.

Extent and value of enhanced provision

Just over half (54%) of the respondents to our survey improve on the statutory terms (outlined in the box below) in some way; this rises to 74% of organisations that recognise a trade union. With one exception, there is little sectoral variation in provision: within our sample of 20 organisations that enhance redundancy pay, two-thirds of those in the manufacturing and primary sector do so, compared with half of employers in each of the not-for-profit, private services and public sectors.

Where enhanced terms are offered, these generally apply to all groups of staff, with the exception of one private services employer. However, the majority (80%) apply the same minimum service criteria as for statutory redundancy pay, with just four employers including staff with less than two years’ service in their enhanced provision. (In such cases, the same redundancy terms are applied as for other staff, although one manufacturer makes a set payment of £5,000 to anyone with less than two years’ service.)

Just under two-thirds (65%) of employers with enhanced redundancy terms have removed the statutory cap on the value of a week’s earnings (currently £544), while half of the same sample with enhanced redundancy terms apply the same service cap as for statutory redundancy pay (20 years). Within the rest of the ‘enhanced’ sample, approaches to caps vary, but a year’s salary is relatively common, with two organisations offering up to as much as 91 or 96 weeks’ pay.

Where employers improve on statutory redundancy provision, around three-fifths (58%) do so by increasing the number of weeks’ pay offered beyond the statutory minimum (which varies by age as outlined in the box). Six respondents simply pay staff a fixed number of weeks’ pay (2.3 weeks at the median and 2.8 weeks on average) per year of service (although at one private services company, an employee’s age also has a bearing on the calculation).  Another common approach is to take the statutory calculation as a basis and apply a multiplier (typically double) to this value. A further three respondents (15% of those with improved provision) make an ex-gratia payment instead but these are typically of variable value and/or discretionary, rather than a fixed amount.

Three organisations have measures in place to ensure that any employee being made redundant stands to receive at least a minimum payout. For example, one public sector employer largely adopts the statutory approach but pays all staff at the level of the statutory weekly earnings cap (£544), even where earnings are below this level, while a manufacturer pays a minimum of three months’ pay (including notice). 

Treatment of other terms

Just under two-fifths (38%) of organisations with discretionary bonus schemes pay a pro rata bonus to redundancy leavers, while a further 29% treat bonuses on a case-by-case basis. A third never pay bonuses in such circumstances.

On the whole, benefits cease immediately when an employee leaves. However, three organisations allow certain benefits (typically private medical insurance or company cars/fuel cards) to continue until their renewal date.