Statutory Redundancy Pay Rights & Calculations
Businesses often have to make employees redundant.
Before making any redundancies, especially if you’re making more than 20, employers must have a firm grasp of the lawful policies, procedures, and amounts due to employees. Employers may also want to consider voluntary redundancy under a settlement agreement in certain scenarios.
As an employer, you should know which employees qualify for redundancy pay, how to calculate it, and whether you should consider voluntary redundancy.
We act for employers who need to manage employment redundancy disputes across the country. We work efficiently to ensure the impact on your business and employees is as minimal as possible. If you require clarity or assistance managing redundancies in your company, we’re here to assist.
Who Qualifies for Statutory Redundancy Pay?
Only employees are entitled to statutory redundancy pay.
Workers may be classified as an employee even if their contract states they’re self-employed.
There are two qualifiers for an employee to be eligible for statutory redundancy pay.
- Must have been employed for two years’ continuous employment at the date of dismissal to qualify for redundancy payment. The maximum length of service that can be taken into account is 20 years.
- Must have been made redundant because there was a genuine need for redundancy.
Who Does Not Qualify for Statutory Redundancy Pay?
Employers do not have to pay statutory redundancy pay to:
- An employee who’s worked less than 2 years in their employ
- Self-employed workers
- Police officers or members of the armed forces
- Crown servants, parliamentary staff, or holders of public office
- Share fisher
- Domestic staff working for immediate family
- Employees of foreign governments
How to Calculate Statutory Redundancy Pay
The amount of statutory redundancy payment for each dismissed employee depends on their age, pay, and length of service.
Redundancy pay is based on:
- An employee’s gross pay (weekly pay before taxes)
- Years employed
- Age
Redundancy pay for employees with regular working hours is based on normal week’s wages.
Redundancy pay for employees with varied working hours is based on an average hourly rate calculated over a 12-week period.
Guaranteed, contractual overtime and contractual bonuses or commission should also be considered when determining weekly pay.
Calculations can be made by following these rules:
Age 21 or Younger
If the person is aged 21 or younger, they receive half a week’s pay for every full year served.
Age 22 to 40
For ages 22 to 40, a person receives one week pay for every full year served.
Age 40+
For ages 40 and over, a person receives one and a half weeks’ pay for every full year served.
Age-Related Restrictions
Age-related restrictions for redundancy entitlement and pay remain, despite the legislation which bans age discrimination.
The week’s pay has a statutory minimum of £751 per week up to a maximum of £22,530pa.
Common Scenarios with Statutory Redundancy Pay
Employee Receiving Sick Pay → Redundancy pay must be based on wages from before sick leave was taken.
Employee on Maternity Leave → Redundancy pay must be based on wages from before maternity leave was taken.
Employee’s Hours Change Weekly → Redundancy pay will be calculated based on the average hours worked in the 12 weeks prior to redundancy notice.
Employee Works Overtime → Redundancy pay doesn’t typically include overtime in weekly pay unless it was consistent, contractual, and/or a must for employee to undertake.
Employee Agreed to Temporary Reduction in Pay → Redundancy pay may be impacted for employees who’ve agreed to drop their wage contractually.
Employee Laid Off or Put on Short-Time Working → Redundancy pay will be calculated based on typical weekly wages when normal hours were worked. Does not apply when an employee agrees to a contractual, permanent change in the amount of hours worked.
Voluntary Redundancy
If you would like to encourage voluntary redundancy, you could consider offering a larger amount than the statutory redundancy payment. However, you may want to be careful not to create a contractual ‘right’ to enhanced payments.
An employee once successfully argued in a Court of Appeal case that a mention of enhanced redundancy payment ‘entitlement’ in his company’s staff handbook meant that he should be paid over the statutory minimum.
Also, be warned that your scheme could benefit older workers much more than younger ones – the latter could claim age discrimination unless you can show that the older workers’ benefit was a proportionate means of achieving a business need. Such needs or aims can be defined as encouraging motivation or loyalty or promoting a rewarding experience for some or all employees.
Contact Helix Law to Ensure a Fair and Reasonable Redundancy Process
Businesses having to make redundancies have a lot on their plate and must follow a strict process to stay compliant.
If you’ve had to make the difficult decision to make redundancies in your company, seek legal advice before sharing redundancy news with your employees. Preparing your redundancy strategy and ensuring your business follows correct procedures is paramount to ensuring minimal disruption. Contact Helix Law for clarification and help managing your company’s redundancies. Our employment team act nationally and have experience acting in matters similar to yours. We’d love to help you.
