Lay-off / Short-time Working vs Redundancy
Comparing lay-off and short-time working (where employment continues but work is temporarily reduced or suspended) with redundancy (where the employment relationship ends), and the statutory rights that apply to each.
Overview
When an employer has insufficient work, they face a choice: temporarily suspend or reduce an employee's hours (lay-off or short-time working), or make employees redundant. The two options have very different legal consequences. Lay-off means the employee is not required to work for a period, but the employment contract continues. Short-time working means the employee works and is paid for fewer hours than usual. Both are governed by the Employment Rights Act 1996 (ERA 1996) Part II and ss.147–154. The term 'furlough' entered common usage during the COVID-19 pandemic, when the Coronavirus Job Retention Scheme (CJRS) allowed employers to place employees on furlough (lay-off) with the government contributing to wages. The CJRS ended in September 2021, but the underlying legal framework of lay-off and short-time working under ERA 1996 remains. Redundancy, by contrast, ends the employment; employees with 2 or more years' continuous service are entitled to a statutory redundancy payment under ERA 1996 s.135.
Side-by-Side Comparison
Lay-off / Short-time Working
Pros
- Preserves the employment relationship — employees retain continuity of service, contractual rights, and entitlements
- Avoids the costs and procedures associated with redundancy — no statutory redundancy pay, no collective consultation obligations
- Flexible — can be reduced or ended if business recovers; the employer does not lose trained staff
- Employee retains all statutory employment rights including protection from unfair dismissal
Cons
- Must be authorised by the contract of employment — imposing lay-off without contractual authority is a breach of contract and may be a constructive dismissal
- If lay-off or short-time working continues for 4 or more consecutive weeks (or 6 weeks in 13), the employee can trigger a statutory right to claim a redundancy payment (ERA 1996 s.148) — the employer may then serve a counter-notice
- Guaranteed minimum payment is low — £35/day (2025–26) for a maximum of 5 days in 13 weeks
- No government support scheme currently equivalent to the CJRS — employer bears the cost of maintaining contracts
Best For
Temporary downturns in business where the employer expects work to resume — particularly where the employer wants to retain trained staff and the employment contracts authorise lay-off.
Redundancy
Pros
- Provides a clean break — the employee receives a statutory redundancy payment and can move on
- Employer's workforce costs are reduced immediately — no ongoing obligation to pay wages or maintain employment
- Statutory redundancy payment is tax-free up to £30,000 — may be combined with enhanced ex gratia payment
- Employee is free to take other employment without restriction (subject to post-termination restrictive covenants if any)
Cons
- Statutory redundancy pay must be paid — calculated as 0.5–1.5 weeks' pay per year of service (ERA 1996 s.162), capped at £700/week (2025)
- Collective consultation obligations apply where 20 or more employees are redundant at one establishment within 90 days — TULRCA 1992 s.188 requires minimum 30 or 45 days' consultation
- Employer risks unfair dismissal claims if selection criteria are not applied fairly or the redundancy is a sham
- Loss of trained, experienced staff — re-hiring costs may exceed redundancy payment savings if business recovers
Best For
Situations where the reduction in work is not temporary — where the employer genuinely no longer needs the role or the volume of employees, and where a clean end to the employment relationship is required.
Key Differences
Our Recommendation
Lay-off should only be used where the employment contract expressly authorises it — imposing lay-off without contractual authority exposes the employer to breach of contract and constructive dismissal claims. If work is unlikely to return within a reasonable period, redundancy is more honest and legally cleaner, though it costs more in the short term. Employees placed on extended lay-off without pay should be aware of their right to trigger a redundancy claim under ERA 1996 s.148 after the qualifying period and should take legal advice before doing so, as the employer has the right to serve a counter-notice.