What Is Statutory Redundancy Pay?

Statutory redundancy pay is the minimum amount that employers must provide to qualifying employees by law. Legislation sets out the criteria that define who is eligible and how much they will receive. based

Employees are protected by law because redundancy commonly means that they lose their jobs through no fault of their own. A sudden change like this can cause financial hardship.

Employers can make more generous provisions for payments called enhanced or contractual redundancy pay. However, what is offered cannot dip below the minimum legal requirement.

Who Qualifies for Statutory Redundancy Pay?

To qualify for statutory redundancy pay, the person must be an employee, not a contractor, self-employed person, or freelancer.

Employers must select candidates for redundancy. If you’re an employer, you’ll usually run a consultation exercise before announcing redundancies, so there may be a possibility of opting for voluntary redundancy, but this is not an automatic right.

The employee must have worked for your company for two continuous years. 

It’s essential to review the details of their employment contract to determine when continuous employment began and whether any factors, such as extended absences, a change in management, or part-time hours, may impact this period.

Some jobs don’t qualify for statutory payments, like roles in the armed forces, the police, or if they are a crown servant.

If you offer an employee a suitable alternative job and they unreasonably refuse it, you are not obliged to pay statutory redundancy pay.

How Is Redundancy Pay Calculated?

How much pay an employee receives is based on several different factors, including their age, the number of years’ service they’ve had with that employer, called ‘continuous employment,’ and their weekly pay before tax.

The employer must explain in writing how the redundancy payment is calculated.

Employees receive

• Half a week’s pay for each full year of service when aged between 17-21
• One week’s pay for each full year of service when aged 22-40

One and a half week’s pay for each full year of service when aged 41 or over. Statutory redundancy pay is limited to 20 years of work, so the maximum statutory redundancy pay an employee can receive is £21,570.

The calculation for redundancy awards is based on notional weekly pay, even if an employee receives a monthly salary. 

Weekly pay is calculated gross (before tax) and must include any guaranteed overtime stated in their contract, as well as any contractual bonuses and commission payments.

If the employee’s weekly pay fluctuates, the employer will calculate an average hourly rate based on a 12-week period. 

The law provides a ceiling for maximum weekly pay of £719, even if they earn more.

Employee rights and employer obligations relating to redundancy are contained in the Employment Rights Act 1996.

Employers can calculate redundancy pay using a calculator like the one on the government website. However, you must have accurate data, such as the employee’s weekly pay before tax and other deductions.

Payment Timing, Notice Periods, and How Employees Will Be Paid

The letter that informs an employee of their redundancy payment amount should also tell them when the money will be paid. The employer and employee may agree to a different payment date, but this must be confirmed in writing.

The payment date can be the date employment ends, their final pay date, or the next regular salary payroll date after their employment has finished. Payment should be made via automatic payroll into the employee’s bank account.

Many people work through a redundancy notice period. However, if they stop work immediately but are still paid for their contractual notice period, this is called PILON, or Payment in Lieu of Notice.

If they receive PILON, the employer must calculate their length of service based on the ‘relevant date’. The relevant date is the date their employment would have ended if they had worked through your statutory notice period.

If the employee’s contract has a specific notice period (this is called ‘enhanced’ or ‘contractual’ notice, the relevant date is the date their contractual notice period would have ended, even if the employee is paid PILON.. 

Rights, Exclusions, and Employer Responsibilities

The employer must set out in writing the amount of an employee’s redundancy pay, how it was calculated, and when it will be paid.

If an employee is not paid correctly, has an issue with how much they are paid, or the redundancy payment isn’t forthcoming, they can take the employer to an employment tribunal.

Statutory redundancy pay does not apply to all jobs. There are exclusions for people employed in the police and armed forces, crown servants, parliamentary staff, and domestic staff within an employer’s immediate family.

Frequently Asked Questions

Is Redundancy Taxed at 40%?

The first £30,000 of any redundancy payment is tax-free. The remaining balance is taxed at an employee’s usual rate on their monthly or weekly wages. If an employee is a higher-rate taxpayer, their redundancy pay above £30,000 will be taxed at 40%. PILON payments are subject to National Insurance deductions and income tax.

Employer Compliance Ensures Fair Redundancy Outcomes

Redundancy is stressful for both employers and employees. Employers must ensure redundancies are handled carefully to align with statutory requirements and avoid expensive errors and claims from staff members.

Helix Law can help. Contact Helix Law today if you’re setting up a redundancy procedure in your business and want to ensure you’ve covered all bases. Avoid expensive mistakes; get legal advice now.