Helping businesses understand redundancy pay

Redundancy is sometimes a necessary evil and unfortunately, it comes with a cost for employers.

There are a number of things to think about when carrying out redundancies, including warning employees of redundancies, creating and applying fair and non-discriminatory scoring criteria and thinking through suitable alternative options. In cases of large scale redundancies, you also need to think about collective consultation rules. And last but no means least, you need to think about pay.

So who is entitled to statutory redundancy pay?

Employees who have worked for at least two years will be eligible for a statutory redundancy payment if the reason for their dismissal is redundancy.

However, an employee will not be entitled to a statutory redundancy payment if they are kept on or if you offer the employee suitable alternative work and they unreasonably refuse.

If an employee has been laid off for 4 weeks in a row or 6 weeks in a 13 week period, they can give written notice that they are going to claim a redundancy payment. The employer can reject the claim if there is a reasonable chance that normal working hours will be resumed within four weeks.

How much are employees entitled to?

The amount they receive will depend on their age, pay and their length of service.

The employee has the right to be paid as follows:

  • half a week’s pay for each full year if they are under the age of 22
  • one week’s pay for each full year they are 22 or older, but under 41
  • one and half week’s pay for each full year they are 41 or older.

The maximum length of service that will be taken into consideration for the purpose of a statutory redundancy payment is 20 years. A week’s pay is capped at £489; therefore if they have been made redundant after 6th April 2017, the maximum statutory redundancy pay they will receive is £14,670.

Employees need to be provided with a written statement which sets out the payment due and shows how the payment has been calculated. If you fail to do so, you may be fined.

Enhanced redundancy pay

Some employers may provide their employees with a contractual right to enhanced redundancy payments. This will be more generous than the statutory redundancy payment and you may make employees who have less than two years service eligible.

To discuss redundancy payments in detail, seek legal advice at the earliest opportunity.

Director of Legal Services

James Tamm

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