Redundancy

Redundancy occurs when an employer’s need for employees to carry out work of a particular kind ceases or diminishes. This may happen, for example, where a workplace is closing, there is a downturn in trade, or a business restructure takes place.

Normally, the employee’s role will have either disappeared, or the job will be broken up and the duties redistributed among other employees. In a redundancy situation, the employer would not usually engage a direct replacement.

When an employee is made redundant, this amounts to a dismissal in law. Employers must therefore ensure that a fair process is followed.

Process

Please see our Guide to Redundancy below for more detailed guidance. In summary, a redundancy procedure may include the following stages:

• Consider alternatives to redundancy: Job sharing / Reduced hours / Flexible working / Overtime freezes
  
  
• Invite voluntary redundancies (to the whole workforce)
  
  
• Identify the redundancy pool: Place employees in the pool 'at risk'
  
  
• Consultation stage: There is no prescribed time limit, but consultation must be genuine and last a reasonable period of time.
  
  Consultation must be two-way, and employers must consider any alternatives proposed by employees
  
  
• Selection for redundancy: Use objective selection criteria (take care to avoid any discriminatory elements)
  
  
• Notice: Give notice to employees selected for redundancy
  
  
• Payments: Pay redundancy pay (and any other applicable payments) to eligible employees
  
  

Redundancy payment

An employee whose employment is being terminated is entitled to statutory notice or contractual notice (whichever is longer), together with any accrued but untaken annual leave up to the termination date.

In addition, employees who qualify are entitled to a statutory redundancy payment.

To qualify, an employee must have completed a minimum of two years’ continuous service at the date their employment terminates.

Where eligible, a redundancy payment is calculated as follows:

• Number of complete years of service up to the termination date (capped at 26 years)
  
  multiplied by
  
  
• A week’s pay (capped at £540)
  
  

Redundancy rebate

An employer who is required to make a redundancy payment under the Act may be eligible to claim a rebate from the Manx National Insurance Fund, provided that the total number of employees in the business, including those employed by any associated employer, does not exceed 40.

A rebate is not payable in respect of an employee who is, or has been within the last 12 months, a director, beneficial owner, or owner of a controlling share.

The amount of the rebate depends on the size of the workforce.

A rebate is also not payable in respect of directors or beneficial owners holding one half or more of the company or a holding company. However, such individuals are not counted when calculating the total number of employees for rebate purposes.

Amount of the rebate payable by number of employees:

• 1 to 5 employees: 60% of redundancy payment
  
  
• 6 to 10 employees: 50% of redundancy payment
  
  
• 11 to 20 employees: 40% of redundancy payment
  
  
• 21 to 30 employees: 35% of redundancy payment
  
  
• 31 to 40 employees: 30% of redundancy payment
  
  

Advance notice to Treasury

Where an employer intends to claim a rebate in respect of redundancy payments, advance written notice should be given to the Treasury (Redundancy Payments Unit).

Notice must reach the Treasury:

• At least 14 days before the proposed termination; or
  
  
• Where 10 or more employees are to be made redundant within a week of each other, at least 21 days before termination

If advance notice is not provided, the amount of rebate payable may be reduced.

Written notice should include:

• Employees’ full names
  
  
• Dates of birth
  
  
• National Insurance numbers
  
  
• The date(s) on which employees are to be made redundant
  
  

Forms

Claims for rebates are made using Form RR2 (see below).

A Form RR1 must also be completed for each employee, confirming that they have received a redundancy payment.

A Form RR3 ('Calculation of redundancy payment – statement for employee') is issued with each Form RR1.