As an HR manager, handling layoffs and the redundancy process is one of the most challenging aspects of the role. Informing an employee that their position is at risk of redundancy requires sensitivity and a clear, fair process. It is also challenging from a legal perspective, with strict UK laws governing how employers must act to ensure HR compliance and avoid claims of unfair dismissal.
This is especially true in the current economic climate. Data from the first two months of 2026 showed that 56,396 jobs in the UK were put at risk of redundancy, a 9% increase on the same period in 2025.
So, what’s the best way to handle layoffs? Should you offer severance pay? And are there any alternatives to layoffs that you could consider?
Let’s explore.
Key Facts
- Handling layoffs in the UK legally requires following a fair and transparent redundancy process, including meaningful consultation with affected employees.
- The UK redundancy rate climbed to 4.9 per thousand employees in late 2025, a figure higher than the previous year.
- Forecasts suggest up to 327,227 jobs could be lost to redundancy in the UK during 2026 as businesses face rising operational costs.
- Following a clear, documented process, such as the one outlined by Acas, is the most effective way to mitigate the risk of an unfair dismissal claim at an employment tribunal.
UK Terminology: Redundancy, Dismissal, and Lay-offs
In the UK, the terminology around ending employment is precise. Understanding it is the first step to compliance.
- Redundancy: This is a specific form of dismissal that occurs when a business needs to reduce its workforce. According to the Employment Rights Act 1996, a redundancy situation happens when a business closes, a workplace closes, or the requirement for employees to do work of a particular kind has ceased or diminished. It is about the role no longer being needed, not the person’s performance.
- Dismissal: This is the general term for when an employer ends an employee’s contract. A redundancy is a type of dismissal, but employees can also be dismissed for other reasons, such as misconduct or poor performance (capability). Unlike in the US, ‘at-will’ employment does not exist in the UK, and dismissing an employee without a fair reason after two years of service can lead to an unfair dismissal claim.
- Lay-off and Short-time Working: In the UK, a ‘lay-off’ specifically means providing an employee with no work (and no pay) for a temporary period. ‘Short-time working’ is when their hours and pay are temporarily reduced. These are not dismissals and can only be used if the employment contract allows for it. They are often used as an alternative to redundancy.
Legitimate Reasons for Redundancy in the UK
As we just mentioned, redundancies are usually implemented as a last resort in order to save a company that is experiencing financial difficulties.
There are a number of reasons why this might occur:
- A reduction in customer demand: If a company experiences a drastic drop in sales, then it will have a direct impact on a company’s cash flow. Redundancies can help to redress the balance by reducing costs in line with anticipated revenue loss.
- Economic downturn: If an economy is going through a financial depression or recession, it often results in a number of industries having to make redundancies in order to break even and stay in business.
- Corporate restructuring: If a company goes through a major restructuring process, then it can often lead to a number of redundancies. These usually relate to positions that have become obsolete. For example, you might automate certain duties if new technology becomes available. As a result, you may no longer require certain positions in your organisation (robotics replacing factory line workers, for example).
- Product changes: If a company’s product line changes in line with evolving customer demand then it can result in changes in an organisation. For example, you might need to hire new teams with new skills and replace existing teams who were working on discontinued products.
Best practices for HR teams
Now it’s time to get to the heart of the matter: what you can do to improve your internal processes so that you can handle potential redundancies as smoothly and delicately as possible.
Let’s take a look at some essential best practices that you and your HR team should be following.
Explore alternatives first
It’s important to remember that redundancies should always be a last resort. If you are considering making one or more employees redundant, then it’s always best to consider your options carefully. You never know— there might be another viable solution that can help your company stay afloat without letting go of staff permanently.
The first thing to consider is the impact redundancy might have on your business. Reducing costs is all good and well, but if the employee is a major player in your business, then their leaving is bound to have an impact on overall productivity. How valuable are they for your business? Will you need to replace the role further down the line once the business is on a more secure footing? These are all important things to consider before you make a decision.
Alternatives to redundancy
It’s also vital that you evaluate if there are any viable alternatives to redundancy that might work for your business.
For example:
- Furlough: This could be a good solution to address short-term cash flow issues. You can still save money, but you won’t lose your staff permanently. For example, you could encourage furloughed employees to work a reduced schedule or take unpaid leave while still maintaining their employee benefits. They can then rejoin on a full-time basis once the company is in a better financial position.
- Job sharing: This is where two employees share duties that would normally be performed by one full-time employee. That way, you can still offer both employees a position in the company and provide them with a reduced but stable income instead of making one of them redundant permanently.
- Pay cuts: If you opt for this solution, make sure pay cuts are agreed on and that you implement them fairly across the entire organisation. Although a pay cut will always hurt, you can still offer employees the stability of a permanent salary.
- Temporarily reduce perks or benefits: This can buy you some extra time to turn around your finances without having to let anyone go. For example, you could reduce or pause discretionary benefits, encourage videoconferencing instead of business trips, or temporarily pause employer pension contributions above the statutory minimum auto-enrolment level, subject to contract terms.
Follow a Fair and Compliant UK Redundancy Process
Redundancy is a legally protected reason for dismissal in the UK, but only if you follow a fair procedure. Failure to do so can result in claims of unfair dismissal or discrimination at an employment tribunal. The Acas Code of Practice on disciplinary and grievance procedures does not apply to redundancies, but Acas provides extensive guidance that tribunals will consider. Key legal obligations under the Employment Rights Act 1996 and Equality Act 2010 include:
1. Establish a Genuine Redundancy Situation
You must have a genuine business reason, such as the closure of the business, a workplace relocation, or a reduced need for a particular type of work. Redundancy cannot be used as a pretext to dismiss someone for performance or conduct issues.
2. Fair Selection Criteria
You must identify an appropriate ‘selection pool’ of employees at risk and use objective, fair, and non-discriminatory criteria to decide who to make redundant. Criteria could include skills, performance records, and disciplinary history. Using criteria like attendance must be handled carefully to avoid discriminating against those with absences related to disability or maternity. ‘Last in, first out’ can be used but may risk age discrimination claims.
3. Meaningful Consultation
Consultation is mandatory. You must discuss the situation with affected employees while proposals are still at a formative stage. This gives them a chance to understand the reasons and explore alternatives.
- For fewer than 20 redundancies: There are no fixed timescales, but you must conduct individual consultation that is meaningful.
- For 20 to 99 redundancies (in a 90-day period): You must start collective consultation with a recognised trade union or elected employee representatives at least 30 days before the first dismissal.
- For 100 or more redundancies (in a 90-day period): This period increases to 45 days.
You must also notify the Redundancy Payments Service (RPS) by filing an HR1 form for any collective redundancy.
4. Consider Suitable Alternative Employment
You have a legal duty to look for and offer any suitable alternative vacancies within your organisation. An employee who unreasonably refuses a suitable alternative role may lose their right to statutory redundancy pay.
Calculate Notice and Redundancy Pay Correctly
Employees with over two years of service are entitled to Statutory Redundancy Pay (SRP). The amount is based on age, weekly pay (capped at a government-set limit), and length of service. In addition, you must provide either statutory or contractual notice. Managing these calculations and ensuring all final payments are correct is critical. Using a centralised HR platform can help maintain accurate employee records, making it easier to calculate length of service and final pay entitlements when you need them most.
Provide Support for Departing Employees
While not a legal requirement, providing support demonstrates good practice and protects your employer brand. This could include offering outplacement services to help with CV writing and job searching, providing references, and allowing reasonable time off for interviews during the notice period. How you treat departing employees has a significant impact on the morale and motivation of your remaining team.
FAQ
What is the best way to handle layoffs?
Provide thoughtful support to both departing and remaining employees. Departing staff should receive comprehensive severance packages and career counseling. Meanwhile, remaining employees need reassurance, open communication about the reasons behind the layoffs, and resources to help them cope with the transition.
What is the rule of 70 for layoffs?
The Rule of 70 is a guideline some companies use to determine eligibility for enhanced severance or retirement benefits. An employee qualifies if their age plus their years of service equals 70 or more. This is a company-specific policy, not a legal requirement.
