Guide
Make employees redundant when closing your business
How to make employees redundant when closing your business. Covers statutory redundancy pay calculations, consultation requirements, notice periods, and what happens if your business becomes insolvent before you can pay employees.
When you close your business, you must follow the correct redundancy process for any employees. Getting this wrong can result in unfair dismissal claims, protective awards, and personal liability for directors.
This guide covers your legal obligations when making staff redundant as part of closing your business, including what happens if you cannot afford to pay redundancy entitlements.
Consultation requirements
Even when closing your entire business, you must still consult with employees before making them redundant. The consultation requirements depend on how many employees you have.
What consultation means when closing
Business closure is a genuine reason for redundancy, but you still need to:
- Inform employees of the situation and reasons for closure
- Give them an opportunity to ask questions and make suggestions
- Consider any alternatives they propose (even if unlikely to change the outcome)
- Discuss timing and how to help them find new work
Important: Do not announce redundancies are definite before consultation. Frame it as a proposal, even if closure is inevitable. This is a legal requirement, not just good practice.
Collective consultation (20+ employees)
If you are making 20 or more employees redundant within 90 days, additional requirements apply.
Collective consultation when closing
When closing a business with 20+ employees:
- 30 days minimum: For 20-99 redundancies, first dismissal cannot take effect until 30 days after consultation begins
- 45 days minimum: For 100+ redundancies, first dismissal cannot take effect until 45 days after consultation begins
- Representatives: If no trade union, you must arrange election of employee representatives
- HR1 form: You must notify the Redundancy Payments Service before consultation starts
Closure does not exempt you: Even if the business is closing entirely, you must still follow collective consultation rules. Failure to do so triggers protective awards.
Statutory redundancy pay
Employees with 2 or more years of continuous service are entitled to statutory redundancy pay. You must calculate and pay this when making employees redundant.
Calculating redundancy pay
For each employee, you need:
- Length of service: Complete years of continuous employment (up to 20 years maximum)
- Age: The employee's age for each year of service, not just current age
- Weekly pay: Gross weekly pay (capped at the statutory limit)
Example: An employee aged 45 with 10 years' service earning £800/week would receive: 5 years at 1 week (age 36-40) + 5 years at 1.5 weeks (age 41-45) = 12.5 weeks' pay at the statutory cap. Use the GOV.UK calculator for exact amounts based on current limits.
Use the GOV.UK calculator to check your calculations.
Notice periods
You must give employees the correct notice period, which is in addition to any redundancy pay.
Notice options when closing
You can handle notice periods in three ways:
- Work notice: Employees work through their notice period. You remain liable for wages, even if there is little work to do.
- Garden leave: Employees stay employed but do not come to work. Useful for protecting confidential information or client relationships.
- Payment in lieu of notice (PILON): Employment ends immediately. You pay them what they would have earned during notice. PILON is always taxable.
Tip: If cash flow is tight, letting employees work their notice conserves cash compared to PILON.
What if you cannot afford to pay redundancy?
If your business becomes insolvent before you can pay employees what they are owed, they can claim from the government.
What employees can claim from the government
When an employer becomes insolvent (liquidation, administration, or certain other insolvency procedures), employees can claim from the Redundancy Payments Service:
- Statutory redundancy pay: Full entitlement up to the maximum
- Unpaid wages: Up to 8 weeks
- Accrued holiday pay: Up to 6 weeks
- Statutory notice pay: Up to 12 weeks
All claims are subject to the weekly pay cap. Employees cannot claim more than the statutory amounts, even if their contract entitled them to more.
Protective awards for consultation failures
If you fail to consult properly, employees can claim protective awards at an employment tribunal.
Why protective awards matter for closing businesses
Directors sometimes skip consultation when closing quickly, thinking there is no point if the decision is made. This is a mistake because:
- Protective awards are payable even in insolvency: They are a preferential debt in liquidation
- Personal liability: Directors can be held personally liable for protective awards in some circumstances
- Award increasing: From April 2026, maximum protective awards double from 90 to 180 days' pay per employee
Even if you cannot avoid closure, proper consultation protects you from these additional liabilities.
Avoiding unfair selection
When closing your entire business, all roles are redundant, so selection criteria may seem unnecessary. However, there are situations where selection still matters.
When selection matters during closure
Selection criteria become important if:
- Phased closure: You are closing over time and need to decide who leaves first
- Retained staff: Some employees are kept on for handover, winding up, or sale of assets
- Partial closure: Only part of the business is closing
In these situations, you must use fair, non-discriminatory selection criteria. Selecting people first because they are pregnant, on maternity leave, or for any other automatically unfair reason will result in successful tribunal claims regardless of business closure.
Redundancy process timeline for closure
Fewer than 20 employees:
- Decide on closure and redundancy (board resolution for limited company)
- Identify all affected employees
- Meet with each employee individually to discuss
- Consider any alternatives or suggestions raised
- Confirm redundancy in writing with notice period and pay details
- Pay statutory redundancy, notice pay, and accrued holiday on termination
- Provide P45 and references
20 or more employees:
- Submit HR1 form to Redundancy Payments Service
- Arrange election of employee representatives (if no union)
- Begin collective consultation with representatives
- Also conduct individual consultations with each employee
- After minimum consultation period (30/45 days), confirm redundancies
- Issue notice and make payments
- Provide P45 and references
Final pay and documentation
On termination, you must provide each employee with:
- Final pay: Salary up to termination date, statutory redundancy pay, accrued holiday pay, any contractual payments
- P45: Shows tax code and earnings to date
- Written statement: Explaining how redundancy pay was calculated
- Reference: Not legally required, but good practice
Keep records: Retain all redundancy records for at least 6 years. If there is a tribunal claim, you will need evidence of consultation and fair process.