Make employees redundant when closing your business

Closing down is a genuine reason for redundancy, but the process is the same as for any other redundancy. If you skip it, employees can claim in an employment tribunal even though the business is closing. This applies to every employer who is dismissing staff because the business is closing.

What to do

Consult your staff

Consult every employee you propose to dismiss. Consultation must be carried out with a view to reaching agreement, including on ways of avoiding or reducing the redundancies, although it does not have to end in agreement. An establishment is the site where an employee is assigned to work, so each site is counted separately.

You must give the trade union or employee representatives written details of the reasons for the redundancies, the numbers and categories of employees involved, how you will select them, how you will carry the dismissals out and how you will work out redundancy payments. If there is no recognised union, arrange for the employees to elect representatives.

Notify the government if 20 or more employees are affected

Submit the form to the Redundancy Payments Service before you give anyone notice.

Give notice

Give each employee at least the statutory minimum notice once consultation has finished.

Pay statutory redundancy pay

An employee is eligible if they have at least 2 years' continuous service and are dismissed as redundant. Pay is based on their age and length of service, counted back from the date of dismissal, using their average weekly pay over the 12 weeks before the day they got notice.

Pay it when you dismiss the employee or soon after. Each employee is entitled to a written statement of the amount and how you worked it out. An employee who is not paid, or disagrees with the amount, has 6 months from the end of their employment to claim in an employment tribunal.

If you cannot afford to pay

If paying statutory redundancy pay would make the business insolvent, the Redundancy Payments Service may be able to help, but you would have to repay it. If the business goes into liquidation or administration, the insolvency practitioner gives each employee a case reference number, which they use to apply to the government.

Choose who goes first

If you are closing in stages, or keeping some staff on to wind the business up, you must select fairly. Skills, performance, attendance and disciplinary record are fair criteria. Length of service alone is risky because it can be age discrimination.

Pay the final wages

The final payment can include statutory redundancy pay, holiday pay, unpaid wages and notice pay. Part of statutory redundancy pay is paid without tax, up to the limit in the table above. Deduct tax and National Insurance from the other elements, such as wages, holiday pay and pay in lieu of notice. Once the last employee has left, tell HMRC and close your PAYE scheme.

If you do not consult

Where collective consultation is required and you do not carry it out properly, employees or their representatives can claim a protective award in an employment tribunal. If the employer is insolvent, they claim against the Secretary of State as well as the former employer.