IGCSE Business Studies - 2.2.4 Why Reducing the Size of the Workforce May Be Necessary

Concept of Redundancy

Redundancy refers to the situation where a job role becomes no longer needed within a business. This can happen for various reasons, leading to the termination of an employee's contract of employment. It's a common, though often difficult, aspect of business management, particularly in response to changing market conditions or technological advancements.

Reasons for Redundancy

Businesses may need to reduce their workforce due to a number of factors. These can be broadly categorized as follows:

• Economic Downturn: A recession or economic slowdown can lead to decreased demand for products or services. This results in lower sales and profits, forcing businesses to cut costs, including staff expenses.
• Technological Advancements: Automation and new technologies can perform tasks previously done by people. This can make certain roles obsolete.
• Restructuring: A business might reorganize its operations, leading to the elimination of redundant departments or roles. This could be due to mergers, acquisitions, or changes in strategic direction.
• Reduced Demand: Changes in consumer preferences or increased competition can lead to a decline in demand for a company's products or services.
• Increased Efficiency: Improvements in processes or productivity can mean fewer employees are needed to achieve the same output.

The Process of Redundancy

When a business decides to make employees redundant, it typically follows a specific process. This process is often legally regulated and aims to treat employees fairly.

1. Identifying Redundant Roles: The business identifies roles that are no longer required.
2. Consultation: The employer must consult with affected employees and potentially employee representatives (e.g., trade unions) to discuss the redundancy situation and explore alternatives.
3. Fair Selection: If multiple employees are deemed redundant, the business must have a fair and objective selection process. Criteria might include skills, experience, performance, and length of service.
4. Notice Period: Employees are typically given a statutory notice period, as defined by law.
5. Redundancy Payment: Employees are usually entitled to a redundancy payment, calculated based on their age, length of service, and weekly pay. This is often calculated using a statutory formula.

Redundancy Payments - Calculation

Redundancy payments are often calculated using a statutory formula. The formula varies depending on the employee's age and length of service. A simplified example is shown below:

Age	Years of Service	Calculation
Under 22	Less than 2 years	£1 per week for each full year of service
22-40	2-8 years	£10 per week for each full year of service
41+	8+ years	£15 per week for each full year of service

Note: This is a simplified example. Actual calculations are more complex and depend on specific legislation and the employee's contract.

Impact of Redundancy

Redundancy can have a significant impact on employees and their families. It can lead to financial hardship, emotional distress, and difficulty finding new employment. Businesses also face challenges, including potential loss of skilled staff, damage to morale, and negative publicity.