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Making An Employee Redundant

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This document discusses your obligations as an employer when making an employee redundant

This document discusses your obligations as an employer when making an employee redundant

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  • 1. Making an employee redundant Table of contents Making an employee redundant 2 Introduction 2 Redundancies, lay-offs and short-time working 2 Avoiding redundancies 3 Redundancy selection - non-compulsory 4 Redundancy selection - compulsory 5 The redundancy consultation process 6 Rights of redundant employees 7 How to help redundant employees 9 Potential problems following redundancy 10 Here's how we planned ahead to avoid making redundancies 12 Helplines 13 Related guides on businesslink.gov.uk 13 Related web sites you might find useful 14 Created by Business Link on 16 September 2009 14:36 You can personalise content from the Business Link website and download it in PDF format. This is a free service Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 1
  • 2. Making an employee redundant Subjects covered in this guide Introduction Introduction It may be the case that the jobs of some or Redundancies, lay-offs and short-time all of your employees become redundant. working This could be because your: Avoiding redundancies • business stops operating • business relocates Redundancy selection - non-compulsory • employees carry out work that is no longer necessary, eg due to the Redundancy selection - compulsory introduction of new technology The redundancy consultation process If this happens, you must not only follow a Rights of redundant employees fair redundancy dismissal procedure, but also keep the affected employees - and How to help redundant employees possibly their representatives - informed. Potential problems following redundancy This guide offers an overview of redundancy Here's how we planned ahead to avoid procedures and employee rights in England, making redundancies Scotland and Wales. Different laws govern Northern Ireland. Helplines Related guides on businesslink.gov.uk Redundancies, lay-offs and Related web sites you might find useful short-time working Redundancy is when you dismiss someone because: • their workplace closes You can find this guide by navigating to: • there is no longer a need for them to Home > Employing people > Dismissals, do the type of work they were redundancies and other exits > Making an employed to do, eg due to the employee redundant introduction of new technology For a redundancy to be genuine, the job that the employee does must disappear, ie you can still take on new staff but not to do the work the redundant employee was doing. Lay-offs and short-time working As long as their terms and conditions of Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 2
  • 3. Making an employee redundant employment allow, you may be able to lay For information on the laws governing off an employee or put them on short-time Northern Ireland, call the DEL Redundancy working rather than make them redundant. Payments Helpline on Tel 0800 58 58 11. A lay-off happens when you temporarily can't give an employee paid work. Avoiding redundancies You should take reasonable steps to avoid Short-time working, for redundancy compulsory redundancies by considering purposes, is where the employee's pay is alternatives, such as: less than half a week's pay. • seeking applicants for voluntary However, provided they comply with certain redundancy and/or early retirement - time limits, employees can claim a statutory see the page in this guide on redundancy payment if the lay-off or redundancy selection - short-time working runs for: non-compulsory • seeking applications from existing • four consecutive weeks or longer staff to work flexibly - see our guide • a series of six or more weeks - of on flexible working - the law and which not more than three were best practice, or use our consecutive - within a 13-week interactive tool to investigate what period kind of flexible working will best suit your employees and you You can read about lay-offs and • laying off casual or contract staff - short-time working on the Acas website - provided that they are not fixed-term Opens in a new window. or part-time employees • recruitment restrictions • reducing or banning overtime Guarantee payments • filling vacancies with existing If you don't provide the employee with work employees throughout a complete day during which • retraining employees and then they would normally be required to work, moving them to other parts of the they are entitled to a statutory guarantee business payment. The maximum payment is five • short-time working or temporary days in any three months. lay-offs - see the page in this guide on redundancies, lay-offs and short-time working See the page on guarantee pay - entitlement, calculation and exemptions in our guide on pay - an overview of Consulting with employees can help obligations. businesses avoid making redundancies. Employees may have different insights into the way the business operates and can offer For more information see our guide on pay - alternative solutions. an overview of obligations. Effective planning can lead to better job Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 3
  • 4. Making an employee redundant security for employees and it can avoid entitlement to an SRP. short-term solutions not suited to the long-term needs of your business. Different laws govern Northern Ireland. For information call the DEL Redundancy Download advice for employers on Payments Helpline on Tel 0800 58 58 11. training, recruitment and redundancy from the Jobcentre Plus website (PDF, Improving business performance 179K) - Opens in a new window. Before considering redundancies you should Offers of alternative work look at your business and see whether there are other things that you can do to improve Even if you have selected an employee for its performance. redundancy, you could still avoid dismissals by offering them alternative work - if We have a range of guides and interactive available. tools that can help you do this. For example, for information on ways to improve your For an offer to be valid: business' profitability and save money, see our guides on increase your profitability • The job must actually be offered to and save money by using energy more the employee, ie the employee efficiently. For advice on operating in tough shouldn't have to apply. The offer market conditions see our guide to should therefore be unconditional managing a business during a recession. and ideally in writing. • The offer must be made before the You can also use our interactive tool to employee's current contract ends. assess how well your business is performing or for more information and The offer should show how the new job sources of assistance see our feature on differs from the old. The new job must either help for businesses. start straight after the end of the old job or within four weeks. Employees who accept an offer of alternative work are allowed a Redundancy selection - four-week trial period to see if the work is non-compulsory suitable. Non-compulsory redundancy covers Suitability depends on a number of factors, voluntary redundancy and early retirement. including pay, job status, location, working environment and hours of work. Voluntary redundancy You could ask employees if they are willing If you agree that the work is not suitable, the to volunteer for redundancy and then select employee may still claim a statutory those to be made redundant from the redundancy payment (SRP). On the other resulting list. hand, if you think that the job is clearly suitable but the employee unreasonably refuses to take it, they may lose any The advantages of voluntary redundancy Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 4
  • 5. Making an employee redundant are that: The disadvantages are that it: • it is less demoralising for the workforce than compulsory • can be expensive compared with a redundancy one-off voluntary redundancy • it is less disruptive, provided the right payment - the business may have to people volunteer fund a long-term pension • less work is needed to check that • may be hard to find new staff for redundancy selection criteria are fair specialised jobs if business improves The disadvantages are that: Early retirement is not a dismissal as long as: • it is often more expensive - longer-serving employees requiring • both you and the employee agree to higher redundancy payments tend to it volunteer • the employee has a genuine choice • you may need to offer enhanced between early retirement and redundancy payments to attract continuing in employment - even if people to leave they still might go on to be made • you may get more volunteers than redundant needed - those not selected may react negatively For early retirement, you do not have to use • you could end up with an imbalance the statutory retirement procedure. in the skills and experience of remaining employees Different laws govern Northern Ireland. For information call the DEL Redundancy To prevent imbalances, many companies' Payments Helpline on Tel 0800 58 58 11. redundancy policies maintain management's right to decide whether a particular employee should be allowed to leave. Redundancy selection - compulsory Early retirement If - despite your best efforts - you have to The advantages of early retirement are that make compulsory redundancies, you will it: need to establish: • is often an acceptable alternative to • A pool of employees, all or some of redundancy for employees and trade whom will eventually be made unions redundant. For example, these could • is less harmful to employee morale be employees at a particular site than compulsory redundancy and/or doing a particular type of • gives opportunities to promote junior work. A pool should be as wide as employees if those retiring occupy possible, but can consist of only one more senior grades employee. Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 5
  • 6. Making an employee redundant • Redundancy selection criteria. • legal industrial action lasting up to 12 weeks, or longer The criteria must be objective, • certain employee representative non-discriminatory and applied consistently. reasons • actions taken on specified health and safety grounds Among the variety of criteria that can be • reasons associated with pregnancy, used to select employees for redundancy maternity, paternity, adoption and are: parental leave • reasons relating to regulations on • Skills, qualifications and aptitude - part-time workers these can help keep a balanced workforce. For a complete list, see the page on • Standard of work performance - automatically unfair reasons for with this method, you need to provide dismissal in our guide on dismissal. supporting objective evidence, for example from the business' appraisal system. See our guide on how to use Different laws govern Northern Ireland. For appraisals to manage information call the DEL Redundancy performance. Payments Helpline on Tel 0800 58 58 11. • Adaptability - it may be important for your business that employees accept different types of work as needs The redundancy consultation change. process • Attendance/disciplinary record - you must apply this method If you fail to consult employees - and their consistently, and be sure your representatives if applicable - in a records are accurate and that you redundancy situation, the redundancy understand the reasons for dismissals will almost certainly be unfair. absences. Do not include absences for maternity, paternity or adoption Collective redundancy consultation leave . If you plan to make 20 or more employees To avoid the possibility of unlawfully redundant in one place of work within a discriminating against anyone, you should 90-day period - a collective redundancy use more than one criterion. situation - you must: Automatically unfair selection criteria • Notify the Department for Business, Innovation & Skills by letter or using Using certain selection criteria will make any form HR1. You can download form subsequent redundancy dismissal HR1 from the Insolvency Service automatically unfair, including selection due website (PDF, 128K) - Opens in a to: new window. • Consult with workplace • trade union membership, representatives. These may be either non-membership or activity trade union representatives or, where Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 6
  • 7. Making an employee redundant no union is recognised, elected employee representatives instead. If • the reasons for redundancies your employees choose not to elect • the numbers and categories of employee representatives, you must employees involved give the relevant information directly • the numbers of employees in these to each individual. categories employed at the establishment • how you plan to select employees for Consultation must start in good time - when redundancy redundancy proposals are in their formative • how you will carry out redundancies stage - and at least: • how you will work out redundancy payments • 30 days before the first redundancy where there are 20 to 99 proposed Consultation does not have to end in redundancies agreement, but it must be properly carried • 90 days in advance where there are out with a view to reaching agreement, 100 or more proposed redundancies including ways of avoiding the redundancies or minimising their effect. If you fail to carry out collective redundancy consultation, affected employees may claim Individual redundancy consultation a protective award from an employment tribunal - see the page in this guide on You should consult employees individually potential problems following regardless of the number you plan to make redundancy. redundant. Redundancy and I&C agreements If you fail to do so, any subsequent dismissals may be unfair. If you have an information and consultation (I&C) agreement in place, you have a duty to inform and consult employees or their Rights of redundant employees representatives on - among other things - changes to the workforce. This means that Redundant employees have a number of you may have to inform and consult on any rights, the main one being the right to proposed redundancies. receive a statutory redundancy payment (SRP). However, you do not have to inform and consult at the same time under both the The right to receive an SRP redundancy and the I&C legislation - you can choose instead to 'opt out' of your I&C To receive an SRP, an individual must: agreement and consult under the redundancy legislation only. • be an employee, ie partners, casual workers, agency workers, the What information must you provide? self-employed and directors not working under a contract of At the start of the consultation, you must employment do not qualify - see our provide written details of: guide on employment status Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 7
  • 8. Making an employee redundant • have at least two years' continuous service - see our guide on payment you make in addition to SRP is continuous employment and subject to tax and National Insurance (NI). employee rights • have been dismissed, laid off or put You must be careful however, when you are on short-term working, ie those who making other termination payments to the opted for early retirement do not employee at the same time, eg a payment in qualify - see the page in this guide on lieu of notice and holiday, as you may have redundancy selection - to deduct tax and NI for these. non-compulsory Failure to make an SRP A redundant employee also has the right to receive a written statement setting out the An employee has six months from the date amount of any redundancy payment and their employment ended to make a claim for how you worked it out. payment to an employment tribunal where either: You must make the payment when or soon after you dismiss the employee. • The employee disagrees with the amount of the payment, or • You fail to make any SRP, eg How is an SRP calculated? because you think that the employee An SRP is based on: is not entitled to it. If they fail to make the claim in time, a tribunal still has the power for a further six months to • the employee's age decide whether or not the employee • the employee's amount of continuous should receive an SRP. service - up to a maximum of 20 years • the employee's weekly pay - up to a If you cannot pay, eg because you're limit of £350 where the employee's declared insolvent, the employee can apply employment ends on or after 1 to the Department for Business, Innovation February 2009 (£380 where & Skills (BIS) for a direct payment from the employment ends on or after 1 NI Fund. October 2009) However, they must have applied in writing Currently, the maximum SRP payable is to you for a payment within six months of £10,500 (£11,400 from 1 October 2009). their employment ending, or applied successfully to an employment tribunal within the six months after that. Use our interactive tool to calculate the statutory redundancy pay due to your Other redundancy rights employee. Redundant employees also have the right Taxation of SRPs to: As long as it's not more than £30,000, an SRP is not taxable. Any redundancy • Be offered alternative employment Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 8
  • 9. Making an employee redundant wherever possible. • Have a trial period in the alternative • Advise them to contact their local employment without losing their right Jobcentre Plus to find out about to an SRP. suitable vacancies or training. • Reasonable time off on full pay for • Set up interviews onsite for job-hunting or to arrange training. redundant employees. You could • Not be unfairly selected for consider using a specialist redundancy. Employees normally outplacement agency - outplacement need at least one year's service to counselling and retraining is tax claim unfair dismissal. However, if an deductible in respect of all redundant employee is selected for redundancy employees, including part-time on certain grounds, their dismissal workers. will be automatically unfair and they • Contact other local employers who do not need a minimum amount of may have vacancies. service. • Offer advice on searching for suitable vacancies in the press and on the internet. For more information, see our page on • Offer guidance on CVs, job automatically unfair reasons for application forms and interview dismissal in our guide on dismissals. techniques. • Highlight the importance of being Different laws govern Northern Ireland. For prepared to consider a wide range of information call the DEL Redundancy jobs. Payments Helpline on Tel 0800 58 58 11. • Consider re-employment if business picks up, where this is appropriate. How to help redundant employees You can also help with financial issues by: Employees (especially those who have worked for many years in the same job or • providing clear information on the workplace) can find redundancy a traumatic financial effects of redundancy - experience - even if they have received a amount of redundancy pay, effect on redundancy payment above the legal pension payments and state benefits minimum. • pointing out the need for the employee to discuss the financial implications of redundancy with their Where possible, you should try to find ways family as early as possible of helping employees come to terms with their situation. The practical and financial help you offer will of course depend on the If you have the budget, you could consider size of your business and the seniority of offering individual counselling. Alternatively any employee being made redundant. you could train personnel managers, if you have them, to carry out this task. It is good practice to do your best to help employees find a new job. To do this, you You could also suggest that employees could: worried about redundancy could call the NHS Credit Crunch Stressline on Tel 0300 Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 9
  • 10. Making an employee redundant in a new window or call the PCDL Helpline 123 2000. on Tel 0800 585 505 to order an application pack. Support for 16- and 17-year-olds being made redundant Apprenticeship redundancies People aged 16 and 17 can get extra If you employ an apprentice who is about to support from their local Connexions service lose their job, it is possible for them to when they find themselves without work or continue their apprenticeship through training. full-time training for a period of up to six months. This will allow redundant If you employ a 16- or 17-year-old in a job apprentices to maintain their framework which does not include a training element, while they and their learning provider look Connexions will already be contacting that for a new employer. young person regularly to find out how they are progressing. It is important that It is therefore important that you let the Connexions is able to track the young providers know if there is a risk of an person's progress in case there is a risk of apprentice being made redundant. them losing their job or needing further support. Further help and advice on redundancies If you find that you have to make a 16- or Contact Jobcentre Plus to find out what 17-year-old redundant, you should contact support is available to help you with training your local Connexions service as soon as and recruitment. Jobcentre Plus and its possible. Find contact details for your partners can also help support you when local Connexions service on the making redundancies. Connexions Direct website - Opens in a new window. Find out how Jobcentre Plus can help you with training, recruitment and If Jobcentre Plus is working with you to help redundancies on the Jobcentre Plus a number of employees being made website - Opens in a new window. redundant, let them know if anyone affected is under 18. If you have a question about redundancy payments or your responsibilities as an Professional and career development employer, you can also get help from the loans (PCDLs) Department for Business, Innovation and Skills Redundancy Payments Helpline on To help them improve their skills in order to Tel 0845 145 0004. find a new job, employees made redundant can apply for a low-interest loan of between Different laws govern Northern Ireland. For £300 and £10,000 to fund a work-related information call the DEL Redundancy training course. Payments Helpline on Tel 0800 58 58 11. Redundant employees can find out about PCDLs on the Directgov website - Opens Potential problems following redundancy Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 10
  • 11. Making an employee redundant Following redundancies, an employee can If you fail to offer alternative work where it's claim unfair dismissal if you: available, any subsequent redundancy dismissal could be unfair. • Have unfairly selected them for redundancy. This covers both where For more information on offering alternative you used selection criteria that were - work, see the page in this guide on on the face of it - fair but you avoiding redundancies. incorrectly applied them and where the criteria themselves make the Failure to properly consult dismissal automatically unfair. • Failed to offer alternative work where If you fail to properly carry out collective it was available. redundancy consultation, a complaint may be made to an employment tribunal by: Employees may also be able to claim a protective award if you fail to properly • trade union or elected employee consult with employees' representatives. representatives • individual employees who have been Unfair redundancy selection dismissed as redundant An employee will have been automatically The tribunal may award up to 90 days' pay unfairly dismissed if you select them for to each affected employee. redundancy for certain reasons. For more on collective redundancy For more information, see our page on consultation, see the page in this guide on automatically unfair reasons for the redundancy consultation process. dismissal in our guide on dismissals. Read about protective awards on the If you select the employee for redundancy Department for Business, Innovation & for any of these reasons, they will be able to Skills (BIS) website - Opens in a new make an unfair dismissal claim regardless of window. how long they have been in your employment. Financial problems Selecting an employee for redundancy If your business would become insolvent as based on poor performance or attendance a result of making the statutory redundancy without being able to provide comparative payments, assistance is available from the information for everyone in the same area BIS Redundancy Payments Service (RPS) may also be seen as unfair. and Insolvency Service, though you will be expected to repay the debt as quickly as Failure to offer suitable alternative work possible. You should try to find alternative work in The RPS can also help if you become your business for employees you have formally insolvent and fail to pay the selected for redundancy. employer's contributions into an Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 11
  • 12. Making an employee redundant occupational or personal pension scheme or What I did owe pay in arrears. Learn from the past Different laws govern Northern Ireland. For "In the late 80s, Easibind experienced rapid information call the DEL Redundancy growth, largely through expanding our Payments Helpline on Tel 0800 58 58 11. customer base and thereby increasing sales volumes. Riding the wave of economic prosperity, our sales force ballooned and we Here's how we planned ahead to were growing at 30 per cent year on year. avoid making redundancies "When recession hit in the early 90s, a Harry Skidmore sizeable number of our customers went to the wall, severely denting our revenues. We Easibind - Opens in a new window realised then that our customer acquisition Harry's top tips: tactics had merely amounted to buying sales, rather than adding real value to the business or investing in its future. • "Watch out for bad debts and consider taking out insurance to cover them. Not getting paid what "Drastic action had to be taken, including you're owed is the quickest route to reducing the workforce from over 200 to just failure." 70 people. That was a bitter regret to the • "Keep in constant touch with your management team, especially since our workforce and be completely honest company is closely integrated with the local with them about the company's community. It took several years to recover prospects." from that position and we vowed that we • "Fight to retain key skills in the wouldn't let it happen again." business. When tough times recede, Re-evaluate everything which they will, you'll need those people to help you move forward." "Good intentions are fine, but you have to do more than just talk the talk. We undertook a top-to-bottom review of the Easibind International provides consultancy company. services in product packaging, promotion and presentation, incorporating techniques "Debt collection practices were an early such as 3D mechanical design and target. While the money had been flowing in, advanced finishing processes. The company we'd been too relaxed about debtors. We is based in Heanor, Derbyshire and put strict new procedures in place which currently employs around 100 people. Here, we've continued to adhere to ever since. managing director Harry Skidmore describes how lessons from the 1990s "We also re-visited our business model, recession led the company to introduce focusing on a smaller number of higher measures designed to strengthen the value customers and placing greater business and avoid making redundancies in emphasis on distribution via trade partners. the future. This reduced our sales and marketing Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 12
  • 13. Making an employee redundant overheads from 15 per cent of revenue to shortfall. just 3 per cent. "We also introduced annualised hours, "In addition, we invested in new digital again in full consultation with employees. printing technology and product innovation, This is a system by which employees' hours forging partnerships with key suppliers and are calculated on a yearly rather than a undertaking Knowledge Transfer weekly or monthly basis. The employer and Partnerships (KTPs) with universities in employee then agree the spread of hours order to share resources. worked according to business needs during a particular week or month. This has worked "Perhaps most importantly, we re-skilled our extremely well for us by increasing our workforce and changed the structure of our flexibility to react quickly to fluctuations in sales teams. Employees on the production demand." side received training to enable them to work more flexibly across a variety of different machines and processes. Helplines Acas Helpline "On the sales side, we introduced graduates into the mix, working alongside older and 08457 47 47 47 more experienced employees who moved into customer-relationship-management roles. This was a conscious move away Department for Business, Innovation and from traditional sales management, where Skills Redundancy Payments Helpline one person is responsible for a single account. It means we can utilise different 0845 145 0004 skills at different stages of the sales cycle, according to customer requirements." NHS Credit Crunch Stressline Keep looking ahead 0300 123 2000 "As well as laying foundations for longer term stability, there are things you can do at a tactical level, to be deployed at relatively short notice if necessary. For example, in Related guides on early 2007 we spotted signs of market businesslink.gov.uk corrections as evidenced in market reports and information gleaned from trade Use our interactive tool to get a checklist associations and customers. of how to handle potential redundancies | Use our interactive tool to calculate the "As a precaution, we introduced a wage statutory redundancy pay due to your freeze for all employees. This was employee | Pay - an overview of discussed with our workforce and obligations | The employment contract | implemented with their co-operation, on the Dismissal | Insolvency and bankruptcy | understanding that if conditions improved, Use our interactive tool to investigate bonuses would be payable to make up the what kind of flexible working will best Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 13
  • 14. Making an employee redundant suit your employees and you | Flexible working - the law and best practice | Redundancy selection process guidance Managing a business during a recession on the Acas website - Opens in a new | Increase your profitability | Save money window by using energy more efficiently | When an employee retires | Prevent Making compulsory redundancies discrimination and value diversity | Use guidance on the Here for business appraisals to manage performance | website - Opens in a new window Inform and consult your employees | Handling employment tribunal claims | Redundancy consultation process Employment status | Workers leaving: guidance on the Acas website - Opens in the basics | Issue the correct periods of a new window notice | Continuous employment and employee rights | Download and print form HR1 from the Insolvency Service website (PDF, 128K) - Related web sites you might find Opens in a new window useful Guidance on offering alternative work on Download training, recruitment and the Acas website - Opens in a new redundancy advice for employers from window the Jobcentre Plus website (PDF, 179K) - Opens in a new window Guidance on tax-exempt payments for outplacement counselling on the HM Training, recruitment and redundancy Revenue & Customs website - Opens in a advice on the Jobcentre Plus website - new window Opens in a new window Protective awards guidance on the BIS Handling redundancy guidance for website - Opens in a new window employers on the Acas website - Opens in a new window Download redundancy payments guidance for employers from the Redundancy consultation and Insolvency Service website (PDF, 300K) - notification guidance on the Department Opens in a new window for Business, Innovation & Skills (BIS) website - Opens in a new window Download the code of practice for work-based pensions from the Pensions Redundancy questions answered on the Regulator website (PDF, 92K) - Opens in Here for business website - Opens in a a new window new window Lay-offs and short-time working guidance on the Acas website - Opens in a new window Making an employee redundant | Created by Business Link on 16 September 2009 14:36 è Crown copyright 2007 Page 14