What is Voluntary Redundancy?

Have you been offered voluntary redundancy recently? While the severance package can be appealing, it can be difficult to assess whether to take your employer up on the offer. We’ve rounded up all you need to know on voluntary redundancy, and whether it’s the right choice for you.

The prospect of redundancy fills most employees with fear. But it shouldn’t be taken as a reflection on your ability, as it’s usually offered when a business simply can’t bring in enough business to keep its employees busy, not because employees aren’t up to the job.

The types of redundancy fall into two camps: voluntary and compulsory. Voluntary redundancy is sometimes offered to employees, encouraging them to nominate themselves to leave (often with the added incentive of a larger financial package than they would be entitled to under the compulsory redundancy route). Despite being of a voluntary nature, voluntary redundancy is still classed as a dismissal rather than as a resignation, meaning that you are still eligible for the same statutory redundancy rights as someone who is subject to a compulsory redundancy.

On the other hand, compulsory redundancy involves the employer identifying those at risk of redundancy and, if multiple employees are at risk of being made redundant, the business will use various assessment techniques to determine which employees will stay and which will go, after consulting with them. Those who are subject to compulsory redundancy will be entitled to statutory redundancy pay if they have been at the company for two years or more.

Whilst it can appear to be preferable to be offered voluntary redundancy over compulsory redundancy, it can often be difficult to have such a big decision put into your own hands. There’s a lot to consider when taking voluntary redundancy, such as how long it will take to find a new job, whether it should prompt a career change, and whether you’ll be better or worse off financially in the long run. With this in mind, we’ve rounded up our readers’ most pressing questions when it comes to voluntary redundancy.

Is voluntary redundancy compulsory?

No, it’s entirely up to you whether you take it or not, and in some cases you can negotiate the terms of your departure.

However, if multiple people are offered voluntary redundancy initially but the company doesn’t receive many takers, the company may start to determine which employees will be subject to compulsory redundancy. This is why the offer of voluntary redundancy can be difficult to weigh up, as you might be subject to compulsory redundancy anyway further down the line, and without the potential increased benefits that come with a voluntary package.

Voluntary redundancy is unlikely to constitute unfair dismissal, as long as the correct dismissal process is followed, and your company has a legitimate reason for letting you go. Accepting voluntary redundancy is also very different concept to constructive dismissal, which applies when your employer’s conduct (for example a change to an employee’s job or working conditions) effectively forces a resignation.

What is a voluntary severance package?

A voluntary severance package is the sum of money an employer offers in an attempt to make voluntary redundancy sufficiently appealing. Accepting the voluntary severance pay proposal from your employer is not compulsory, but it is frequently offered in an attempt to avoid having to go down the compulsory redundancy route.

The sum offered in a voluntary severance package can vary. It can range from one weeks’ salary for every year worked, to  6-12 months’ pay  in some cases. It can correlate to various factors including the length of your notice period and how much you would earn during that time, as well as contractual benefits you may be entitled to.

According to Anna Skelton, Senior HR Business Partner, Jobsite: “Voluntary severance packages can be negotiable, so if you are considering voluntary redundancy but you don’t think the sum is large enough to mitigate the risk you are taking, you could ask your employer for more.”

“Companies typically find it preferable for redundant staff to be self-appointed; if voluntary redundancy hasn’t been taken up by as many staff as they had hoped, you could be in luck when it comes to negotiating a higher offer.”

How does voluntary redundancy pay compare to statutory redundancy pay?

There is no definitive rule but generally speaking payments made in the context of a voluntary redundancy are often larger sums than statutory redundancy pay, offered to make it appear more financially attractive for you to agree to terminate your contract.

Statutory redundancy pay is what you are entitled to you when you are subject to compulsory redundancy and you’ve been working at the company for over two years. This is the minimum amount that a company is obliged to pay you, but they can often pay you more and regularly do so, as part of a voluntary redundancy offer for example.

Your age comes into the equation too:

  • For each full year that you were under the age of 22, you receive half a week’s full pay
  • For each year worked between the age of 22 and 40, you receive a whole week’s full pay
  • For each full year worked aged 41 and over you receive one and a half weeks’ full pay

In both cases, you are also entitled to be paid your wages for your notice period.

Top tip: You can find out how much statutory redundancy pay you are entitled to on GOV.UK

How do voluntary redundancy payments work?

It varies between employers, but voluntary redundancy payments are usually paid out in one lump sum upon the termination of your contract. However, these payments can be phased through a longer period, lasting from six months up to two years.

Depending upon your circumstances, you can try to negotiate for these payments to be made in a way that suits you. There are no guarantees, but it’s always worth trying.

Generally speaking, the first £30,000 redundancy pay is tax free. Anything over this will be subject to taxation in the usual way.

What is the notice period for voluntary redundancy?

Minimum notice periods are prescribed by law, although some employers give longer periods in their contracts so it’s always best to check. Even if your contract makes the position clear enough, in some circumstances the terms and timescales of your departure from the company can be up for negotiation.

The statutory minimum periods are: at least one week’s notice if employed between one month and 2 years; one week’s notice for each year if employed between 2 and 12 years; and 12 weeks’ notice if employed for 12 years or more.

You should be paid throughout your notice period or given a payment in lieu of notice, depending on what is permitted in your contract.

Remember, you are not obliged to take your employer up on their offer for voluntary redundancy, so don’t do anything you don’t feel comfortable with.

If you’re considering taking voluntary redundancy, make sure you feel comfortable in the sum you are being offered, and have factored in taxation rates into all of your calculations before confirming anything with your employer.

If you have taken redundancy, you can begin the job application process immediately, so why not have a look for your next potential role today? On the other hand, you can take voluntary redundancy and embark on a complete career change. You never know, it might just be the best thing that ever happened to you!

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