How to Model a Redundancy Programme: Costs, Compliance, and Payback

The Core Design Challenge

In the UK, statutory redundancy pay is calculated as:

• Half a week's pay per complete year of service under age 22

• One week's pay per complete year between ages 22 and 40

• One and a half week's pay per complete year aged 41 and over

Weekly pay is capped at £643 (2024/25 rate), with maximum service capped at 20 years. For an employee aged 45 with 8 years' service earning £90,000 salary, the statutory entitlement is: 8 years × 1.5 weeks × £643 = £7,716. Enhanced redundancy schemes typically offer 1–3 months' salary per year of service without the weekly pay cap, which is meaningfully more generous.

If you're making 20 or more redundancies within 90 days at one establishment, collective consultation obligations trigger:

• Minimum 45-day consultation period before the first dismissal takes effect

How the Approach Works

• HR1 form submitted to the Insolvency Service at least 45 days before the first dismissal

• Representatives must be elected if no recognised union exists

• Consultation must be "meaningful" — not a rubber stamp

Failure to comply with collective consultation requirements can result in a protective award of up to 90 days' pay per affected employee. On a 70-person reduction, that exposure can run to several million pounds.

A restructuring cost model has five lines:

• Enhanced redundancy pay: Calculate per individual using contractual entitlement (not just statutory)

• Notice pay: Contractual notice periods, including PILON if applicable

Governance and Implementation

• Outplacement: Typically £1,500–£3,500 per head for professional roles

• Legal and advisory fees: Employment law counsel for 20+ redundancies; budget £25,000–£75,000 depending on complexity

• Implementation resource: HR manager time, communication costs, potential settlement agreements

The payback period is: Programme Cost ÷ Annual Salary Saving. A Capital Markets restructuring reducing headcount from 240 to 170 at an average salary of £82,000 generates an annual saving of approximately £5.74m (70 roles × £82,000). If the programme cost (redundancy + notice + outplacement + legal) is £3.29m, the payback is 3.29 ÷ 5.74 = 6.9 months.

Present this to your CFO as: "We spend £3.3m once and save £5.7m every year thereafter. Payback in under 7 months." That's the narrative.

Redundancy selection must be based on objective, non-discriminatory criteria. Common approaches:

• LIFO (Last In, First Out): Easy to administer, but indirectly discriminatory if younger/more diverse employees were hired more recently. Avoid unless your union agreement requires it.

Putting It Into Practice

• Skills matrix: Score each employee against defined competencies relevant to the retained roles. Must be applied consistently and without managerial bias.

• Attendance and disciplinary record: Can be included, but must exclude any absences related to disability or pregnancy.

Whatever criteria you use, document the scoring process meticulously. Every redundancy selection decision must be defensible if challenged at tribunal.

Redundancy communication has three audiences: at-risk employees, survivors, and the market. Each needs a different message and a different channel. At-risk employees need honest, timely, compassionate individual conversations. Survivors need to understand the rationale and see a path forward. The market — clients, candidates, press — needs a confident narrative about where the business is going. Sequence matters. At-risk employees must hear before anyone else. Leaks destroy trust.