What is voluntary redundancy?
Voluntary redundancy is when an employer invites employees to put themselves forward to leave the business, usually with an enhanced financial package. This supports staff leaving the business and also provides an incentive for uptake. Unlike compulsory redundancy, the decision lies with the employee, who can decide whether or not to apply.
For many organisations, it can be an attractive option to offer voluntary redundancy, meaning they can reduce headcount without forcing dismissals. For employees, this allows them to leave the organisation on terms that are often more favourable than compulsory redundancy packages. It may provide them with a welcome opportunity to pursue a career change or enter early retirement with the security of a financial cushion.
“Managing redundancy is never easy, but transparency and fairness are key to maintaining trust during times of change. Voluntary redundancy can provide a more collaborative approach, helping businesses reduce risk and protect morale. Leveraging tools like payroll software ensures accuracy in final payments and compliance with legal obligations, which is essential for both the organisation and its people.”— Mathew Crook, Managing Director
What’s the difference between compulsory and voluntary redundancy?
Compulsory redundancy means that the employer selects specific employees for dismissal, based on certain selection criteria. In contrast, volunteering allows employees to choose to leave, commonly supported by enhanced redundancy pay to make the offer more appealing. This removes some of the tension by inviting volunteers, though employers still reserve the right to decline applications if a particular role is essential to business operations
What are the business benefits?
Offering this rather than compulsory offers more benefits than just allowing employers to reduce their workforce. From reduced friction to stronger employee morale, this approach helps businesses to manage change more smoothly.
Reduces the risk of legal disputes
When redundancies are forced, employees may claim unfair dismissal or discrimination, leading to time-consuming and expensive legal challenges. This type of redundancy reduces this risk because employees actively opt into the process. By making redundancy an opt-in process, the decision is mutually agreed, limiting the grounds for disputes.
Avoids the complicated selection process
Compulsory redundancy requires employers to apply fair and transparent selection criteria for redundancy. This process can be stressful for managers and upsetting for employees. This type of redundancy avoids this by allowing employees to self-select. However, businesses still need to consider operational requirements and apply fair selection criteria for redundancy where necessary.
Keeps morale high during periods of change
Compulsory redundancies can leave staff feeling undervalued and create resentment among those who remain. Volunteering helps to maintain goodwill, as the process is more collaborative. Open communication prevents employee disengagement and reassures staff that your business values fairness.
Helps to maintain a positive employer reputation
How a company handles redundancy can have lasting effects on its brand. Offering redundancy pay that is fair and transparent shows respect to employees. This in turn can help to preserve a strong employer brand, which is reflected in employee sentiment and metrics such as net promoter score.
Can lead to cost savings in the long term
Although enhanced pay may seem costly upfront, this approach can actually help to achieve long-term savings. Voluntary schemes can help to reduce overheads more efficiently than compulsory redundancies by avoiding drawn-out disputes, protecting productivity, and ensuring smoother workforce transitions.
How does voluntary redundancy work? Step-by-step guide for employers
Employers need a structured approach to ensure that redundancies are managed fairly, legally and effectively. We’ve put together a step-by-step guide so you can manage the process smoothly and meet your employer obligations.
1. Identify whether this is the right option
First of all, assess whether the business challenge truly requires workforce reduction. Consider financial pressures, long-term strategy, and whether this type of redundancy will achieve the right balance without disrupting core operations.
2. Set clear criteria for offers
Not every role can be made redundant. Employers should define affected business areas and ensure that decisions are fair, objective, and in line with employment law.
3. Prepare a clear policy
Employees need confidence that the policy is fair and transparent. Document the process from eligibility to application deadlines and pay terms, and outline how decisions will be applied in practice.
4. Communicate the option to employees
In such a delicate process, clear communication is vital. Provide written details of the scheme, explain eligibility, and allow time for questions. Transparency helps to avoid misunderstandings and reassures staff from the very beginning.
5. Invite and manage applications
Set a timeframe for applications. Confirm receipt in writing and keep records to demonstrate compliance and fairness.
6. Assess applications against business needs
Employers can reject applications if a role is business critical. Each decision must balance employee preference with the operational needs of the company, and not all roles can be made redundant.
7. Negotiate redundancy terms where needed
Some employees may want to discuss enhanced packages or alternative arrangements. Employers should ensure that outcomes remain consistent with statutory requirements and fair practice.
8. Provide formal redundancy agreements
Once applications are approved, all decisions, both positive and negative, should be confirmed in writing. These communications should outline notice periods, pay, and any support being provided.
9. Support employees through the transition
Offer services such as career advice, retraining or outplacement support to departing employees. These measures help them to feel supported throughout the transition, while also protecting your organisation’s reputation.
10. Fulfil legal and compliance obligations
Employers must meet statutory redundancy consultation requirements, ensure that correct payments are processed, and provide all necessary documentation before employment ends. We’ll look at these obligations in more detail in the next section.
11. Finalise notice periods and handovers
Work with exiting employees to agree on handover plans and timelines. Knowledge transfer ensures continuity and minimises disruption after staff depart.
12. Maintain morale and business continuity
Remaining employees need reassurance that their jobs are safe. Ongoing communication helps to maintain trust and prevents disengagement during a period of change.
Employees’ rights
Under the Employment Rights Act 1996, this is classed as dismissal, not resignation. This means that employees retain rights to redundancy pay, notice and consultation. Understanding these rights is key to ensuring that the process is fair and legally compliant. Let’s take a closer look at employee rights when being made voluntarily redundant.
Voluntary redundancy pay
Employees are entitled to statutory redundancy pay, which may be enhanced by the employer. The rates are based on age, length of service, and weekly pay, capped at a statutory maximum. Businesses should also ensure that their payroll software is equipped to handle this accurately, avoiding errors that could result in underpayment or legal issues.
Notice period
Employees are entitled to their contractual or statutory notice period. Managing this properly ensures fairness and protects against claims of unfair dismissal. Employers should confirm notice arrangements in writing and make sure workloads and handovers are planned effectively. Failing to honour the correct notice can damage trust and expose the business to legal and financial risks.
Time off to look for a new job
Employees taking this type of redundancy may be entitled to paid time off to attend interviews. Employers sometimes offer payment in lieu of notice as an alternative, though this can involve higher immediate costs. Supporting leavers in this way shows that the organisation values their workforce and helps to build goodwill with both departing and remaining employees.
Redundancy consultation
Even where employees volunteer, employers must carry out formal consultation. Failure to do so risks claims of unfair dismissal. Consultation ensures that employees understand their rights and can make informed decisions about whether to take it.
Manage voluntary redundancy pay effortlessly with PeopleHR
Voluntary redundancy offers a way for businesses to reduce their workforce while maintaining trust and fairness. Understanding what this is how it compares with compulsory redundancy, and the business benefits of the practice allows employers to follow a clear and transparent process. This helps them to achieve smooth transitions while maintaining morale and protecting their reputation.
With PeopleHR, you can handle every stage of the redundancy process more efficiently. Our flexible payroll solutions support accurate pay calculations and ensure compliance with employment law, reducing the risk of costly mistakes and giving both employers and employees peace of mind.
Watch our quick 4 minute demo or contact us today to see how our software can simplify HR admin and give you confidence during periods of organisational change.
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