How much redundancy pay must we pay?

The amount of statutory redundancy payment for each dismissed employee depends on their age, pay, and length of service. Calculations can be made by following these rules:

• If the person is aged 21 or younger, they receive half a week’s pay for every full year served
• For ages 22 to 40, a person receives one week’s pay for every full year served
• For ages 40 and over, a person receives one and a half week’s pay for every full year served.

Employees must have served two years’ continuous employment at the date of dismissal to qualify for redundancy payment. Maximum length of service that can be taken into account is 20 years.

Age-related restrictions for redundancy entitlement and pay remain, despite the legislation which bans age discrimination.

The week’s pay has a statutory maximum of £508 per week up to a maximum of £15,240.

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.

To clarify issues surrounding redundancy pay, contact us.