This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Comprehensive guide on redundancy in small businesses in England and Wales. Learn when redundancy applies, consultation and notice requirements, redundancy pay rights, fair selection criteria, and practical steps for both employers and employees navigating redundancy in a small business.
Redundancy occurs when an employer needs to reduce its workforce because roles are no longer needed due to changes in the business. Small businesses may face particular challenges handling redundancy fairly and legally, especially when there are limited employees and fewer formal HR structures. This comprehensive guide explains how redundancy law applies to small businesses in England and Wales, what rights employees have, how employers should manage the process, and practical steps both sides can take to reduce legal risk.
What Is Redundancy?
Redundancy is a form of dismissal that arises when an employer no longer requires an employee to perform work of a particular kind, or when the business or part of it closes. It is not about performance or conduct; it is about the role ceasing to exist. Employers must show a genuine commercial reason for redundancy, such as downturn in demand, restructuring, or automation of tasks. Misusing redundancy as a pretext for dismissing an individual for other reasons can lead to legal claims.
Redundancy Rights That Apply to Small Businesses
Employee vs Worker Status
Only employees (not self‑employed contractors or many agency workers) have statutory redundancy rights. This distinction matters in small businesses where roles may be flexible or contractual.
Statutory Redundancy Pay
Employees with at least two years' continuous service are generally entitled to statutory redundancy pay. This payment depends on age, length of service and weekly pay, with statutory caps on the amounts involved. Smaller employers must still calculate and pay this where eligible.
Notice Periods and Other Entitlements
All employees under redundancy are entitled to the correct notice period (either statutory minimum or a longer contractual period). They also have the right to reasonable time off to seek alternative work or training after being put at risk of redundancy.
Right to a Fair Process
Even in very small businesses, employers must handle redundancy fairly. This typically involves consultation, objective selection criteria, consideration of alternatives, and documentation. Failing to conduct a fair process can lead to unfair dismissal claims if the employee has the qualifying period for such rights.
Step‑by‑Step Redundancy in a Small Business
Step 1: Establish Genuine Redundancy
Before making anyone redundant, the employer must ensure the role truly is redundant. Redundancy is not a mechanism for dismissing someone for performance issues, conduct concerns, or personal reasons. Common lawful redundancy scenarios include closure of part or all of the business, diminished need for work of a particular kind, or changes in operational requirements.
Step 2: Plan and Communicate
Small employers should plan the process carefully. Even where there are very few employees, you should:
- Explain why redundancy is being considered.
- Identify which roles are at risk.
- Consider whether the role can be adapted or combined with other duties.
- Explore alternatives to redundancy, such as reduced hours, redeployment, natural attrition, or voluntary redundancy.
Step 3: Individual Consultation
If your small business proposes to make fewer than 20 redundancies, there is no statutory requirement for collective consultation with representatives. Instead, employers should consult individually with each affected employee. There must still be meaningful discussion about why redundancy is being proposed, how selection will be made, and whether alternatives exist.
Good practice suggests multiple meetings - for example:
- A first meeting to explain the situation and gather employee feedback.
- A follow‑up meeting to discuss responses and any suggestions.
- A final meeting to confirm the decision and entitlements.
There is no defined statutory timescale for individual consultation, but it should be genuine and not a formality. Failing to consult properly can lead to unfair dismissal claims or protective awards by an employment tribunal.
Step 4: Selection Process
Where there is more than one employee whose roles might be redundant, the employer must apply objective selection criteria consistently. Good criteria include skills, experience, business needs, and attendance records - not age, gender, disability or other protected characteristics. Biased or inconsistent criteria can lead to discrimination claims.
Step 5: Notice and Redundancy Pay
Once redundancy is confirmed:
- Provide the correct notice period based on the employment contract or statutory minimum.
- Pay any statutory redundancy pay due to eligible employees.
- Pay accrued but untaken holiday and any other contractual entitlements.
- Consider whether a notice period will be worked or paid in lieu.
Step 6: Appeals and Documentation
A clear process should include a right of appeal against the redundancy decision. Good documentation of the reasoning, consultation, selection and payment helps mitigate tribunal risks. This is best practice even where it is not mandated.
Small Business Specific Considerations
No Collective Consultation Threshold
Collective consultation rules apply only where 20 or more redundancies are proposed at the same establishment within a 90‑day period. Small businesses making one or a handful of redundancies generally only need to consult individually.
A Court of Appeal decision has confirmed that general workforce consultation is not mandated for small‑scale redundancies beyond the individual consultation requirement.
Avoiding Costly Mistakes
Small businesses must take care to:
- Avoid using redundancy as a substitute for performance or disciplinary processes.
- Ensure consultation is genuine and documented.
- Avoid discriminatory selection criteria.
- Consider alternatives to redundancy before finalising decisions.
Missteps can lead to unfair dismissal, discrimination or protective award claims in an employment tribunal, even for small employers.
Practical Tips for Employers
- Plan redundancy decisions early and link them transparently to business needs.
- Hold clear, documented individual consultations with employees at risk.
- Apply fair and objective selection criteria.
- Communicate regularly and compassionately.
- Seek specialist advice if your situation involves complicated contracts, potential claims, or collective actions.
Practical Tips for Employees
- Request written information about redundancy reasons and selection criteria.
- Participate in the consultation and raise alternatives where relevant.
- Check your contract for notice periods and enhanced redundancy terms.
- Seek advice from ACAS, Citizens Advice or a solicitor if you believe the process is unfair or discriminatory.
Common Questions
Can a small business make one person redundant?
Yes. There is no minimum number of redundancies for the redundancy process to apply. Employers must still consult individually and follow a fair process.
Do small business employees still get statutory redundancy pay?
Yes. If the employee has at least two years' continuous service and is an employee, statutory redundancy pay applies, irrespective of business size.
Is general workforce consultation always required?
No. For fewer than 20 redundancies at one establishment, general workforce consultation is not a statutory requirement. However, individual consultation remains essential.
Key Takeaways
Redundancy in small businesses in England and Wales is governed by the same core employment laws that apply to larger organisations. Small employers must ensure redundancies are genuine, consult individually with affected employees, apply objective selection criteria, and fulfil notice and payment obligations. While collective consultation rules do not usually apply to small‑scale redundancies, employers must still handle individual consultations with care to reduce the risk of tribunal claims. Both employers and employees benefit from clear communication, thorough documentation and early advice when navigating redundancy in a small business setting.
