What is voluntary redundancy?

Voluntary redundancy schemes are used fairly frequently by larger employers as a way to minimise compulsory redundancies. If your employer is seeking voluntary redundancies, it can be a very difficult decision to make and you are bound to have lots of questions. Our employment law solicitor Emma Reid addresses some of the most common queries below.

How is voluntary redundancy different from compulsory redundancy?

If an employer is in a situation where they need to reduce headcount and reduce costs, they may consider voluntary redundancy before a formal redundancy consultation is entered into with staff. Usually, voluntary redundancy will be offered on terms which are more generous than the statutory entitlement which applies in a compulsory redundancy situation.

How is voluntary redundancy pay calculated?

Different organisations will have their own way of calculating entitlements but very often a formulaic approach is taken. This could a formula such as two weeks’ pay per year of service or a calculation method which mirrors the statutory entitlement to redundancy pay but does not cap it at the statutory level of a week’s pay (this has been set at £538/week since April 2020 but tends to increase every year).

How is a VR payment different to statutory redundancy pay?

In a compulsory redundancy situation, your entitlement is to be paid as usual up to the termination date, be paid in lieu of or to remain employed during your notice period, be recompensed for accrued and untaken holiday pay and to receive statutory redundancy pay calculated according to length of service and age.

Can I be refused voluntary redundancy?

An employer may have valid reasons for refusing a valid voluntary redundancy application or request for example, an employee’s skills may be seen as vital for the business. There are certain reasons which should not be relied upon in decisions about voluntary redundancy- employers must ensure that they are not acting in a manner which is discriminatory (e.g. treating applicants unfavourable due to age, disability, sex, race or religion).

Will I pay tax on a voluntary redundancy payment?

This will depend on the value of the payment received however, usually it is possible to pay the first £30,000 of any redundancy payment free of tax, the excess over £30,000 will be subject to income tax. Salary, holiday pay, bonuses and notice pay all remain taxable.

What does a voluntary redundancy process look like?

Usually, an employer will look for applicants at an early stage in any redundancy consultation. They may explain to employees why the organisation is needing to consider cutbacks and explain entitlements in voluntary redundancy process. Very often the employee will exit before a formal consultation process is underway and the employer will require them to enter into a settlement agreement. The settlement agreement is a legal document which brings the employment to an end and documents the amounts payable. Our blog explains settlement agreements in detail here.

Should I take legal advice on a voluntary redundancy offer?

If your employer asks you to enter a settlement agreement, you will be required by law, to take independent legal advice before the agreement becomes binding. We have acted as recommended advisers in many mass redundancies involving voluntary schemes as well as compulsory redundancies. We will advise you on your legal rights as well as whether the offer you have received is a good deal in the circumstances. We are used to acting within the tight timescales that employers often impose in these situations and are confident that you will feel in a much better position to make an informed decision after speaking to our team.