Redundancy pay increase to hit employers

23 April 2009

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The Chancellor announced in the Budget that the maximum week's pay, which is used to calculate the statutory redundancy payment is to increase from £350 to £380. This will significantly raise the costs of making redundancies for all employers at the very time when it is least needed.

An employee with 20 years service, all of which have been when aged over 41, will recover a statutory redundancy payment of £11,400. Even the redundancy payment due to a younger employee with only two years service will now be £760.

This is likely to come in to effect with the next Common Commencement Date on 1 October 2009. If you are in the middle of making redundancies, you will need to ensure that you factor this in to the costs and ensure employees are paid what they are entitled to based on the date their employment actually terminates.

This may also increase the level of unfair dismissal awards where the basic award traditionally reflects statutory redundancy pay, but we haven't seen any confirmation that this will follow.

When you consider that the maximum possible statutory redundancy payment/basic award as recently as January 2000 was only £6,600, the costs of redundancy will significantly increase, almost doubling. It may be difficult to see how this fits with the Government's commitment to easing the burden of regulation on businesses.

The one silver lining (albeit a pale silver) is that at least the Government has not agreed with the TUC's calls last week to extend the right to a redundancy payment to all employees with 12 months service, for now. This may only be a matter of time as there is a commitment to introduce a new "floor" for the minimum level of redundancy payments during the "next parliament".

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This article was prepared by the FPB's legal advisers, Mace & Jones Solicitors. More information can be obtained at www.maceandjones.co.uk.

This is intended as a brief guidance note and professional advice should be obtained before acting on any information contained in it.

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Redundancy pay increase to hit employers

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