What is voluntary redundancy and how does it work?

Lydia Smith
·Writer, Yahoo Finance UK
·4-min read
Voluntary redundancy is when an employer asks an employee to agree to terminate their contract, in return for a financial incentive. Photo: Getty
Voluntary redundancy is when an employer asks an employee to agree to terminate their contract, in return for a financial incentive. Photo: Getty

Businesses in all sectors have been forced to adapt during the pandemic, offering online services, takeaway goods and shifting to home-working to weather the crisis.

And for the first time in a year, unemployment in the UK has fallen. The Office for National Statistics said the unemployment rate fell back slightly to 5% in the three months to January, representing 1.7 million people – down from 5.1% in the three months to December.

However, we are not out of the woods yet. Although the extension of the furlough scheme has protected jobs, workers may face redundancies when restrictions begin to lift and the programme ends once again.

If your employer is planning to make redundancies, you can choose to put yourself forward for redundancy before being selected. But what exactly does this entail?

What is ‘voluntary redundancy’?

Voluntary redundancy is when an employer asks an employee to agree to terminate their contract, in return for a financial incentive. Although there is no obligation to accept the terms offered by your company, you will usually receive more money than you would in a traditional redundancy package.

There are two ways you can put yourself forward for voluntary redundancy, the Acas website states. Your employer may ask for volunteers before making a decision, or you can offer to be made redundant.

Of course, your employer doesn’t have to agree to let you go. Ultimately, the decision lies with them and the company will consider the needs of the business. If you have years of experience and are essential to the business, your employer might decide to keep you on. If you have been selected for redundancy, it’s important you get it in writing from your employer confirming you’ve been made redundant.

What will you receive if you volunteer for redundancy?

Before offering to be made redundant, it’s important to find out what the redundancy package will be. You may be offered a financial package or other incentives, such as not having to work your notice period. What you are offered depends on your company and you’ll also still get any other redundancy rights you’re entitled to, such as time off to look for a new job.

The money you receive for voluntary redundancy is often more than the amount offered for statutory redundancy pay. It will take into account factors such as your age, salary and the amount of time you’ve worked at the business.

READ MORE: How to deal with redundancy

Normally, you would be entitled to statutory redundancy pay if you’re an employee and you’ve been working for your current employer for two years or more. You’ll get half a week’s pay for each full year served (under 22 years old), one week’s pay for each full year served (between 22 and 41 years old), or one and a half week’s pay for each full year served (42 years and older).

Your notice period will depend on how long you’ve been with the company, but it will also be outlined in your contract.

It’s important to be aware of discrimination, too. Your employer can’t just offer voluntary redundancy to age groups eligible for an early retirement package, as this could be unlawful age discrimination. “However, an early retirement package (for certain age groups) could be one element of a voluntary redundancy offer open to all employees,” the Gov.uk website states.

How to decide whether to take voluntary resignation or not

Voluntary redundancy gives employees more time to prepare financially for losing their job and a lump sum of money - as well as other incentives - can be attractive. If you know the company is struggling, it may be the best option for you.

READ MORE: What you need to know about redundancy rights

However, it’s important to consider how voluntary redundancy will affect you in the long-term, depending on your circumstances. To make an informed decision, examine your budget to see how long your redundancy pay will last when you are paying rent, your mortgage, bills and more. This will also give you a timespan of how long you can financially go without working.

If you do decide to take voluntary redundancy, you will need to inform your employer that you have accepted their terms. Make sure you have the terms and conditions in a letter, so you have it in writing should you need it.

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