Recession raises redundancy pay limit

7 July 2009

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The Government has confirmed that it will increase the weekly pay limit used to calculate statutory redundancy payments from £350 to £380 in accordance with the 2009 Budget.

The introduction of this one-off increase will be effective from October 2009 and there will be no annual increase of the limit in February 2010. Therefore from October 2009 to February 2011 the limit will be £380. The increase will also effect other compensation payments such as the basic award in unfair dismissal claims. The aim of the one-off increase is to provide a stronger safety net for redundant employees in the recession without placing too heavy a burden on employers.

The Government introduced a statutory redundancy payment in 1965. The motivation behind the payment was to encourage workers to cross industries and increase economic growth. Since 1999 the Government has increased the statutory redundancy pay limit each February in accordance with the Retail Price Index.

However, due to the current economic recession and with redundancies on the increase, calls for a greater safety net for employees being made redundant, began to grow. In deciding upon the appropriate action to solve this growing concern, the Government considered raising the redundancy pay limit to the average weekly wage of £450. This significant increase was rejected by Parliament and the increase to £380 was based on a decision of balancing fairness between employers and employees.

It is predicted that the policy change will have a varied impact across each industry. For example, low paying sectors such as distribution, hotels and restaurants are likely to have fewer individuals who earn over £380 per week and are likely to be less affected than higher paying sectors such as banking and finance.

The success of this policy change will not be reviewed until a year after its introduction in summer 2011. The review will be carried out by the recently formed BIS (the new department for Business Innovation and Skills) which was created after the Department for Business, Enterprise and Regulatory Reform (BERR) was merged with the Department for Innovation, Universities and Skills (DIUS) earlier this month.

With implementation costs estimated at £2.3million it is hoped that the change will have a positive affect across the majority of business sectors and more importantly provide rapid help for those made redundant during these testing economic times.

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Recession raises redundancy pay limit

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