Being told you aren’t needed is a horrible experience. Giving that news is almost as difficult.
But sadly, redundancy is a fact of life for modern companies. In 2023, over 200,000 US workers were laid off in the tech sector alone, while 40% of companies had already planned redundancies before 2024 even started.
Just because it’s been common recently doesn’t make it any easier, though. Managing redundancy is never easy.
It’s understandable that, over time, companies need to ease employees out to optimize resources and balance skills. But badly managed lay-offs damage morale and harm departing workers. That’s why you need an employee redundancy plan.
This guide will offer insights to ease the pain of letting people go. We will help you evaluate and manage redundancies—balancing business needs with simple compassion.
TL;DR — Key Takeaways
Redundancy happens when an employee’s job is no longer needed. Unlike firing, it is a strategic decision based on business reasons, not individual considerations.
Redundancy has many causes. Poor economic conditions render roles obsolete. A company may downsize or restructure to remain competitive. New technology displaces older roles, while outsourcing replaces internal roles.
Redundancies can be compulsory or voluntary. When redundancy is voluntary, employees put themselves forward. This often happens during cost-cutting drives. Compulsory redundancy is common when businesses need quick headcount reductions.
Dealing with redundancy requires compassion and skill. Employers must evaluate roles and understand what causes redundancy. HR teams must communicate clearly and support employees. Overall, redundancy compensation and notice periods should balance compassion and costs.
Companies should always consider retraining employees if possible. Hire employees with versatile skill sets and then create career development plans to enable job switching as conditions change. That way, you can restructure without disrupting workplace morale and operations.
What is employee redundancy?
Employee redundancy happens when a company decides a position is no longer needed.
This happens for various reasons. Roles could become obsolete due to technological or market shifts, or companies might close regional offices or remove product lines. Regardless of the ‘why,’ when this happens, the person occupying the role must usually depart as well.
As an employee, it’s important to know that companies don’t make employees redundant due to personal or performance issues. Instead, redundancy is about meeting business goals. Companies use redundancy for business reasons like restructuring or updating their skills portfolio.
Top tip:
Generally speaking, there are two redundancy types: voluntary redundancy and compulsory redundancy.
- Voluntary redundancy: Companies issue a call for redundancies—usually to trim their overall costs. Employees volunteer to leave their positions and negotiate redundancy payment terms (i.e., a nice severance package).
- Compulsory redundancy: Companies choose positions and individuals to make redundant. This method relates to strategic restructuring or pressure situations where quick headcount reductions are vital.
Redundancy vs. layoffs
Layoffs and redundancies are slightly different but related concepts. Knowing how they differ matters, as they serve different strategic purposes.
Layoffs generally respond to temporary market conditions or business reasons.
Companies may have financial constraints, or recessions could wipe out demand. Roles generally reappear when prosperity returns.
Redundancies permanently remove positions from the business structure.
Following strategic analysis, an employer decides to remove unnecessary roles. Stakeholders collaborate to reinforce this decision with a robust business case. Ideally, removing the role improves business performance regardless of external business conditions.
Redundancy vs. downsizing
Downsizing reduces overall employee headcount to boost efficiency and cut costs.
This usually happens when companies assess their overall needs and financial situation and create large-scale redundancy programs to achieve their goals.
Redundancy focuses on individual roles, not the entire organization. Businesses assess every role and job category on a rolling basis. Redundancy kicks in when roles become unnecessary.
Common causes of redundancy in the workplace
Now we’ve defined redundancy, let’s find out why redundancies happen.
As noted earlier, one-off workplace factors like personal disputes or disciplinary breaches don’t cause redundancies. Issues caused by bad hiring or cultural mismatches do often lead to dismissals and departures, but that’s not what redundancy is all about.
A genuine redundancy occurs when systemic factors render a role obsolete.
The issue here is that most companies fail to assess systemic issues. That’s huge because understanding the roots of redundancy helps you smooth the process.
When you understand the why, HR teams can explain why terminating employees is necessary and tailor communications to ease the pain. During the notice period, employees can plan their next move. Information can help them retrain and choose a new job aligned with market trends.
“Thanks for your service” is never enough. So, let’s review some business reasons to inform your redundancy strategy.
Technological advancements
New technology changes how companies deliver services, displacing human employees with software or physical devices. What was once a very important role can sometimes become a costly burden that drains resources and makes the company less competitive.
Top tip:
Automation is a great (but unfortunate) example we are all being impacted by in some way. AI chatbots can replace human customer service or support teams at lower costs. Generative tools could replace designers, administrators, writers, and even developers (although we’d argue that won’t happen anytime soon 🤞).
Economic downturns
Economic downturns force employers to quickly adjust their strategies. Companies may abandon departments or products as demand nose-dives. When these changes become permanent instead of a temporary measure until things stabilize, redundancies become essential.
Top tip:
As the 2008 Financial Crisis showed us all, financial instability also causes redundancies. Banks and other financial organizations ditched armies of traders, focusing on retail banking and less risky activities.
Organizational restructuring
Redundancies often occur when businesses choose to change their structure, often in response to shifting market conditions. This might also follow mergers and acquisitions as companies remove duplicate roles and choose which assets to retain.
Changes in business strategy
Sometimes, companies make workers redundant during larger strategic shifts.
- Regulatory changes can play a role. For instance, Panasonic moved its European operations from the UK to Amsterdam after Brexit.
- Overseas operations could also underperform. Dutch pensions company APG closed its Beijing operations after only four years after a bond strategy failed.
- Product shifts also lead to redundancies. For example, Microsoft announced 10,000 redundancies in 2024 as it pivoted away from XR (Extended Reality).
Outsourcing
Outsourcing seeks to improve efficiency by using third parties instead of in-house employees. When companies choose to outsource, internal solutions may become obsolete.
Top tip:
Here are a few key indicators that can help you assess if outsourcing to contractors makes sense for your company.
Market competition
This one is a general theme rather than a specific cause. Market competition can lead companies to adopt outsourcing, offshoring, or technology, but its importance deserves separate attention.
All companies compete. Sometimes, they lose ground by keeping roles beyond their natural lifespan. Redundancies help by reallocating resources, boosting efficiency, and cutting costs.
How to evaluate an employee’s job for redundancy
This is where redundancies become emotionally difficult.
HR teams need processes to evaluate roles and identify unneeded positions. Decisions must be objective, evidence-based, and systematic—all tasks that are not easy when assessing colleagues’ futures.
Even so, we have to try. Without systematic processes, redundancies are haphazard and may undermine performance. Let’s run through essential steps to ensure decisions align with your long-term goals.
Assess business needs and goals
Firstly, assess your business objectives from an enterprise-wide perspective. What strategic goals matter most to your organization?
Roles should align with these business goals. If a position or job category no longer contributes meaningfully, you may need to consider redundancy.
Review job descriptions
Diving down from the macro to the micro level, we need to assess each job description. Job descriptions define roles and responsibilities, and they must fit your business goals.
Check for outdated tasks. For instance, “Maintaining Microsoft Access customer databases” is no longer necessary if your CRM resides in the Cloud.
Keep a record of tasks and requirements for each role. Compare the findings against business requirements to determine which roles are still relevant.
Analyze workload and performance data
Job descriptions only take us part of the way towards redundancy decisions. We must also assess employee workloads to determine how much value roles deliver.
Leverage performance data such as task completion rates. This data helps you classify roles according to their business contribution.
But wait. Data isn’t everything because we also need to…
Consider employee versatility
Outdated job descriptions and poor performance metrics may not clinch the case for redundancy. You could still reshape roles to meet business goals without axing redundant employees.
Versatility is also important. A role may not deliver on its own. But what if the same employee can contribute elsewhere in the organization?
Top tip:
Hybrid roles based on the employee’s job description could work better than removing the position. That’s why you should always build upskilling into professional development plans. See what that might look like below for a machine operator role.
Evaluate the potential for redeployment
Dismissal may not be the best course of action. As mentioned, talented employees could fill other roles or upskill to pursue new opportunities.
After all, you hire employees due to their skills and personalities. A workplace is severely diminished when those qualities depart. It’s also good to show other employees you care about their success.
The bottom line? If you can, offering internal alternatives is often the smartest way to go.
Best practices for handling redundancy
Poorly managed redundancies have devastating downsides. Departing employees feel demoralized and adrift, and the remaining employees fear for their job security. Your employer brand suffers as potential recruits link the company with callousness and greed.
These huge issues make professionalism and care critically important if you’re going through a round of redundancy. The best practices below provide a route to stress-free redundancies (or, at the very least, help make them slightly less stressful).
Communicate transparently
Transparent communication makes a confusing and stressful process easy to understand. Give departing employees the information they need to manage their affairs and leave without disagreements.
Elements of the communication strategy vary, but a typical process could go like this:
Explain why the dismissal is happening. Give the business reasons, and don’t patronize employees. Feel free to explain in-depth. Honest information is always best.
Communicate the notice period. Under US law, you can choose how long the notice period lasts. Two weeks is a standard minimum, but strict time limits aren’t always essential. Flexible periods suit individual circumstances (but avoid favoring individuals and stick to company policies).
Outline how you calculate redundancy pay and how employees can claim. Document if you operate a seniority policy (paying more for years of service). If not, younger employees may feel unfairly treated.
Mention healthcare benefits separately, as this area can be extremely sensitive. Explain how long insurance coverage will last, and what remains covered.
Top tip:
If possible, notify employees about new opportunities to retrain and assume different roles. Offer a pathway to redeployment and consider a choice between assuming new roles and voluntary redundancy packages.
Offer support services
Even in the best situations, redundancy can be draining. Employees need support to manage the process and emerge with a positive mindset.
Outplacement strategies help here. Connect departing workers with training providers and career services. These measures can start well before the notice period ends. That way, you can leverage internal mentors from your workforce to build confidence.
Be attentive to mental health, too. Offer career counseling for all employees scheduled for dismissal, and look for red flags like performance issues. Make employees feel valued until they depart.
Follow legal and ethical guidelines
When done badly, redundancy can be a legal and regulatory minefield. Don’t take any risks. Consider relevant regulations when designing your redundancy process.
Unfair dismissal laws in the US generally allow redundancies, but you need to be careful to avoid accusations of discrimination against employees (which should be a no-no in any case). Make sure employees can’t claim they are victims of retaliation—as a whistle-blower, for example.
In the UK and elsewhere, rules are a bit tighter. UK companies must notify employees well before redundancies take effect, consult employees, and avoid unfairly selected dismissals.
Wherever you are, operate unbiased and transparent redundancy policies. Clearly state why you are making employees redundant. Explain the business reasons and steps you have taken to ensure a fair selection process.
The same applies to calculating redundancy pay. Use the same policies for all affected employees and document entitlements in a redundancy pay policy.
Top tip:
That’s not just ethically right. Fairness is also a good business practice. UK employment tribunals can levy £100,000 compensation fines, and US court cases can be even more damaging.
Plan for remaining employees
Affected employees don’t just include the ones being made redundant. Redundancies impact colleagues, managers, and even third parties. Planning helps avoid future disruption.
Address the workloads of remaining employees at the outset. If you cannot distribute work in a fair way, take a step back. Is the redundancy justified, or are you making existing staff work harder?
Staff may have concerns about their future job roles and burdens. Listen to their concerns and take them on board. Do this early on—before starting the notice period. Employees understand their roles intimately and offer unique insights about how to redesign workloads.
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Stress the benefits of restructuring to those who will stay, whether through company-wide emails, meetings, or workshops. Redundancies should improve your operations and help remaining employees. Let them know how this will work to avoid morale dips.
Provide adequate notice
Finally, as we’ve mentioned throughout our previous points, ensure you get notice periods right.
In the UK, laws define notice periods. You must provide at least one week’s notice for employees with less than a year of service. The notice period increases by one week for each year of service, up to a 12-week maximum.
In the United States, there’s no statutory notice period. As noted earlier, two weeks is routine, but companies can choose their notice policies.
Top tip:
We suggest extended notice periods as they allow businesses and employees to prepare. Providing more time is also just the right thing to do. It shows compassion and respect for staff members, who may return later in their careers.
Can you avoid issues by upskilling redundant employees?
With planning and a compassionate approach, redundancy doesn’t have to be traumatic. But here’s a thought: What if you could avoid the redundancy process altogether?
The secret lies in proactively managing workforce skills. Strategic upskilling reduces the need for redundancies, equipping existing staff to assume new roles. Roles may change, but employees remain because you’ve invested in their skills profile and professional growth.
Investing in skills is a smart move. Upskilling promotes stability, improves morale, and encourages career development. Companies can adapt to market changes and evolve without the drawbacks of the traditional redundancy process.
At Toggl Hire, we know the value of skills and hate seeing skilled employees leave.
Our full-cycle recruitment solutions make it easy to plan your workforce skills. Hire versatile recruits with the potential to grow with your business long-term. Monitor skills of existing staff and keep redundancies where they belong: in the cupboard of last resort.
To find out more about Toggl Hire, create a free account today.
Elizabeth is an experienced entrepreneur, writer, and content marketer. She has nine years of experience helping grow businesses, including two of her own, and firmly believes in Toggl's mission of challenging traditional beliefs about what building a successful business looks like.
