No manager wants to face the possibility that they may need to make some of their staff redundant. Yet with the credit crunch, it would be irresponsible for managers struggling with costs not to think about the possibility. Although many may feel guilty for cancelling employment contracts with the job market so fragile, the truth is that it's often the safest thing to do both for you and your staff in the long run. If you don't take action and reduce your wage bill with a few redundancies, you could risk everyone in your company being out of work if the business goes under! Simply put, for most companies, the wage bill is the biggest expense, which means that redundancy can be a quick way of setting a struggling business on the road to recovery.

Any Alternatives?

As redundancy is such a big deal (legally, for the company, the remaining staff and those let go), it may first be worth considering if there are any alternatives that can be considered. One option of cost cutting is to put a freeze on overtime, or by shortening working hours. You will find that the majority of employees would be happier to take a small pay cut than to lose their employment contract altogether.

Another option is freezing recruitment programs. Instead you can look to retrain staff and move them to a more urgent position, or even see if existing staff can share an entirely new role between them.

Finally it may be worth looking to cut unnecessary expenses anywhere else first. The trouble with this is that they tend to be small drains upon the resources, and can't match the savings that the redundancy of employees will generate.

If none of these are possible, then it's time to look into the redundancy procedure, and you will want to get legal advice before continuing. It's perfectly legal to make employees redundant, but you have to make sure you go about it the correct way.

The Two Types of Redundancy

There are two types of redundancy: compulsory and voluntary. As the name suggests, the former is when you pick the staff to be made redundant, and the latter is where you encourage volunteers to request redundancy. They both have their own advantages and disadvantages:

Voluntary Redundancy

If you actually ask for staff to volunteer, you can avoid much of the upset that compulsory redundancies cause and there are fewer steps to ensure you are legal with your staff cuts. The trouble is that it has the potential to be more expensive – staff that have been at a company longer will be entitled to a larger redundancy payment, and unsurprisingly they tend to volunteer first. Of course you can turn down the request for redundancy, but in many cases staff who volunteer will go on to resign anyway. As you can see, it's cleaner and better for morale, but you lose a lot of control over whose employment contracts you cancel.

Compulsory Redundancy

By contrast, compulsory redundancy gives you complete control over those that stay and the ones that go, but can cause some serious morale issues. When selecting the employees who are to be released, you need to assess them on a number of qualities, which usually include their skills and qualifications, general performance, adaptability, attendance and disciplinary history.

You need to be able to justify these criteria with reference to business documents. If performance is an issue for example, then you need to be able to point to regular staff appraisals. If attendance and discipline are the reasons for redundancy then you need to ensure you have kept accurate records and that you are completely consistent across the board with all employees.

Keeping it Legal

When you have selected the employees that you are considering making redundant, you need to inform them of what is going on. While you may be tempted to just tell those affected, the nature of office gossip means the others will find out eventually anyway, so it is better to be open and honest with everyone. Be sensitive and explain the situation delicately.

In one-on-one sessions with the people chosen, you need to explain to them why the job is being made redundant, why you chose them (the selection process outlined above), the timescale involved, whether there is another position in the business they could switch to and, importantly, how much redundancy payment they can expect. Conducting 2-3 interviews would be prudent.

In order to work out the amount owed to someone being made redundant, you need to check your business documents to ascertain how long they have been at the business, their age and their weekly pay. It works out as follows:

-½ a week's pay for each year completed when aged below 22

-1 week's pay for each year completed when aged between 22 and 40

-1 ½ week's pay for each year completed when aged 41 and over

This goes up to a maximum of 20 years employment. Those who have been at the company for less than two years are not entitled to any payment.

This weekly pay is worked out from the wage of the employee at the time. It is the gross pay amount, before tax and national insurance contributions are deducted. It will not include overtime, unless that was both compulsory and regular. If the earnings fluctuate from week to week, then you are required to check your business documents and work out the average from the 12 weeks leading up to the redundancy. You also need to include commission if it's paid regularly. Finally, there is a cap of £330 per week on redundancy pay, and that is the maximum even if the employee earned more than this.

In terms of notice period you need to give, again it depends on how long the employee has been with the company. For those who have been there more than a month, but less than two years it is one week. For those who have been there for two years it becomes two weeks. For three years it becomes three weeks, up to a maximum of 12 weeks notice. Anyone who has served at the company for more than 12 years is entitled to a statutory 12 weeks notice, or whatever the employment contract states.

Although this is an abridged guide to redundancy, it covers the basics that you need to know. If you are planning on going ahead with redundancies, then it's best to check your employment contracts, and get a solicitor in to make sure that you are all above board. The last thing a company with the financial concerns that prompt a redundancy (and the morale drop from carrying one out) needs is a costly tribunal.