One of the hardest parts of being a small business owner is having to let someone go. Startups often lack in-house HR, making it easy to make redundancy mistakes that can turn into major headaches.
In 2026, we are in a major transition phase. The Employment Rights Act 2025 is now the law of the land, and the new Fair Work Agency (FWA) has officially launched to keep an eye on how you handle redundancy.
Quick Answer: The 6 Essential Steps
| Step | What to do |
| 1 | Business Reason: Redundancy is only valid when a role is no longer required because of changes in the business. |
| 2 | Define the Pool: Identify which employees within a redundancy selection pool are at risk. |
| 3 | Consultation: Hold meetings to provide an opportunity to discuss voluntary redundancy with your team. |
| 4 | Alternatives: Search for another role within the business, such as retraining or job sharing. |
| 5 | Scoring: If multiple people are being made redundant, use objective data to score employees against the redundancy matrix. |
| 6 | Pay: Confirm the right to redundancy pay and ensure employees get their redundancy payments processed. |
Redundancy Under the 2026 Legal Framework
A genuine redundancy is valid under the 1996 Act if a business is relocating, closing, or if there is no longer a business need for specific roles. However, the 2025 Act added new layers:
- Fair Work Agency (FWA): Launched 7 April 2026, they can inspect records to ensure you don’t make the process of paying what is owed.
- Unfair Dismissal Changes: The qualifying period is dropping to 6 months in 2027. Throughout the redundancy process in 2026, treat the first 6 months as a “suitability window” for new staff.
The Redundancy Timeline (Small Business Example)
There’s no “set” time for redundancies involving fewer than 20 people, but rushing feels cold and looks suspicious to a judge. Aim for 2 to 4 weeks.
- Week 1: The Announcement. Send out “At Risk” letters and hold a group or individual meeting to explain the situation.
- Week 2: The One-on-Ones. Sit down with at-risk staff. This is where you discuss alternatives like job sharing or reducing hours.
- Week 3: Scoring & Decisions. Use your matrix (see below) to make your choice and notify the individuals.
- Week 4: Notice & Final Steps. Send the official redundancy letter and work through the notice period or PILON.
Selection and Scoring: The Matrix
If you must select one person from a group, you must use an objective Selection Scoring Matrix. Weights should be adjusted based on your operational needs.
| Criteria | Weight | Rationale |
| Relevant Skills | 40% | Essential for business logic and recovery. |
| Performance | 30% | Redundancy based on objective historical value. |
| Disciplinary | 20% | A factual, documented conduct metric. |
| Flexibility | 10% | Ability to adapt to a change in the business. |
2026 Compliance Tip: Ensure your “Attendance” criteria strictly excludes any absences related to disability, pregnancy, or maternity leave to avoid discrimination claims under the enhanced protections of the 2025 Act.
Statutory Redundancy Pay and Notice (2025/2026)
The following rates apply to redundancies occurring between 6 April 2025 and 5 April 2026.
Statutory Redundancy Pay (Required for 2+ years of service)
| Age During Years of Service | Entitlement per Full Year Worked |
| Under 22 | 0.5 week’s pay |
| 22 to 40 | 1 week’s pay |
| 41 and over | 1.5 week’s pay |
- Weekly Pay Cap: £719.
- Service Cap: 20 years.
- Maximum Statutory Pay: £21,570.
- Tax Status: Generally tax-free up to £30,000.
Statutory Notice Periods
| Length of Continuous Service | Minimum Statutory Notice Period |
| 1 month to 2 years | 1 week |
| 2 years to 12 years | 1 week for every full year of service |
| 12 years or more | 12 weeks (Statutory Maximum) |
Collective Redundancy: The “180-Day” Penalty
If you’re letting go of 20 or more people in one location:
- The Penalty: As of 6 April 2026, the “Protective Award” for failing to consult properly has doubled to 180 days’ pay per employee.
- HR1 Form: You must notify the Insolvency Service online at least 30 days (for 20–99 staff) or 45 days (for 100+ staff) before the first person leaves.
Final Payroll Considerations
- PILON (Notice Pay): Fully taxable for Income Tax and NI.
- Holiday Pay: You must pay out any unused holiday time (fully taxable).
- Redundancy Pay: This is compensatory, so it’s tax-free up to £30k.
Conclusion
A potential redundancy must be handled with care to remain valid under the law. The requirement to make the time for consultation exists without any requirement to make the dismissals immediate. You should always check if a non-compulsory redundancy offer could solve the issue before making it final.
If an employee challenges the redundancy decision, the review should be conducted by someone different from the original decision-maker. It is best if someone different from the person who scored the matrix handles this final stage. By following this business logic, you protect your firm from being considered for redundancy litigation.
FAQs
Q: Can I make someone redundant while they’re on maternity leave?
Yes, but never because of it. The 2025 Act gives these employees “priority” for any other open roles in the company for up to 18 months after the birth.
Q: What if they refuse a different role?
If the new role is “suitable” and they refuse it without a good reason, they might actually lose their right to their redundancy pay. Always offer a 4-week trial period.
Q: Should I offer an appeal?
It’s not strictly required by the 1996 Act, but the FWA and Acas consider it “essential” for a fair process. Skipping it is an invitation for an unfair dismissal claim.
Summary Checklist for 2026
- [ ] Business Case: Documented the genuine operational need?
- [ ] At Risk: Issued formal letters and informed staff of their right to accompaniment?
- [ ] Consultation: Held meaningful meetings and recorded minutes?
- [ ] Scoring: Used a matrix with objective, non-discriminatory criteria?
- [ ] HR1 Form: (If 20+ staff) Submitted online at least 30/45 days in advance?
- [ ] Pay: Calculated using the £719 cap and correctly taxed via payroll?
