Guide to Redundancy payments

Contractual Redundancy Payment

If you provide a contractual redundancy scheme, an employee’s redundancy payment should reflect the terms and conditions set out in this scheme. Failure to provide the employee with the necessary payment, as set out in the scheme, may render you in breach of contract, entitling the employee to bring a breach of contract claim to an employment tribunal or to the county court.

Statutory Redundancy Payment

An employee who is being made redundant is only entitled to receive a statutory redundancy payment if he or she has two years or more continuous service with his or her employer.

The maximum number of years that are counted for statutory redundancy purposes is 20. Length of service should be calculated by counting backwards from the effective date of dismissal. This is generally the date on which the notice given to the employee ends. You must be aware that long-erm absences caused by sickness, lay off and pregnancy count towards continuous service.

The redundancy payment due to each employee under the statutory redundancy payment scheme depends onhis or her age and length of service (up to 20 years). This determines the number of weeks pay due which is then subject to a limit on weekly pay, currently £475.

To calculate the number of weeks redundancy pay is due, note that an employee is entitled to:

0.5 weeks pay for each full year of service where the employee was aged under 22 during the year

1.0 weeks pay for each full year of service where the employee was aged above 22 but under 41 during the year

1.5 weeks pay for each full year of service where the employee was aged over 41 during the year

The current maximum redundancy payment which an employee is entitled to receive is £14250 (1.5 weeks x 20 years x £475).

Upon making a redundancy payment you must provide the employee with a written statement indicating how the amount was calculated.

To help you calculate an employees redundancy pay entitlement, please contact our membership services department who will be able to send to you the Statutory Redundancy Pay Table, or you can view the details within your Members Employment Guide.

A redundancy payment is calculated by cross referencing the employees age and length of service, then multiplying that number by the weekly salary (the weekly salary is currently capped at £475)

Example:

A person earning a wage of £200 per week, aged 25, with 4 years service will be entitled to redundancy payment of three and half weeks salary, which equates to £700. (200 x 3.5 = £700).

A person earning a wage of £490 per week, aged 41, with 10 years service will be entitled to a redundancy payment of 10 weeks salary, capped at the statutory maximum payment of £475, which equates to £4750 (£475 x 10 = £4750).

The statutory redundancy table starts at 17 years of age as it is possible for a 17 year old to have two years service.  The table stops at age 61 because after this age there are no further increases in the maximum number of weeks entitlement.

Notice and Holiday Pay

Notice

In addition to redundancy, all employees have the right to minimum periods of notice. In cases where the employee is not required to work, he or she should be given notice in lieu and be paid for the whole period.

If the contract provides for more notice than the statutory minimum, you must pay that higher amount.

The statutory notice period is:

  • less than 1 month – minimum notice period is nil
  • Between 1 month and 2 years continuous service – minimum notice period is 1 weeks notice
  • Between 2 years and 12 years continuous service – minimum notice period is 1 week for every complete year of service
  • Over 12 years service – minimum notice period is 12 weeks notice

Calculating pay for accrued holiday entitlement

When an employee is made redundant, he or she is also entitled to payment for any outstanding accrued holiday.

The amount an employee is entitled to receive is calculated by the following formula: ( A x B ) – C

  • A = the number contractual days leave per year
  • B = the proportion of the leave year which expired before employment ended
  • C = the period of leave taken between the start of the leave year and the date employment ended

Accrued holiday on termination does not need to be rounded to the nearest half day – payment can be made for the exact amount of leave accrued.

Time off for Interviews

You should ensure that any redundanct employees with over two years service working their notice are allowed resonable time off to attend interviews.  Such employees are paid for any time off, up to a maximum of two-fifths of a weeks salary. Any time over and above this could be unpaid if the employer so chooses.

 

Article updated 4th May 2016

Introduction

If you’re in the unfortunate position of having to make an employee redundant, there are four possible payments an employee may be entitled to. In this article, we explain what they are.