Redundancy pay | UK

What is Redundancy Pay?

Redundancy pay is employees' compensation when they are terminated from their employer's organization. It is ideal for organizations to always have all their employees on hand - hiring, training, and retaining new employees are substantial investments. The possibility of role redundancy may also result from external factors, such as company restructuring, job obsolescence, a merger or transfer of ownership, relocation, or a recession. 

An employee made redundant after working continuously for their employer for at least two years is entitled to statutory redundancy payments. Likewise, statutory redundancy pay applies to fixed-term contracts that are not renewed after two years.

Your employer should pay to claim statutory redundancy pay automatically, so you are not required to claim it. It might be a good idea to ask your employer about your employment status if you need clarification.

What exactly is redundancy pay, and am I entitled to it? 

There are two types of redundancy pay: statutory and contractual.

According to the law, you are entitled to statutory redundancy. It must be paid to you if you've been employed for two years continuously and there's a genuine reason to terminate your employment.

A contractual redundancy occurs if your employer fails to renew a fixed-term contract for more than two years. Additionally, it will be eligible for this treatment if several shorter contracts follow each other. 

Some circumstances can prevent you from receiving redundancy pay, even if you meet the criteria. You can experience this if you accept a job offer from your employer with a valid reason or switch jobs before your current one ends. Redundancy rights may also be lost in the event of a fire. 

There are several reasons why you won't be entitled to redundancy pay, including the fact that you need to work for at least two years to qualify. There are four types of self-employment on the list: self-employment, service as an officer in the armed forces, Crown servants, parliamentary employees, and public officials. Employees of foreign governments or domestic workers for their own families cannot apply. 

How does redundancy pay work? 

Your redundancy pay should be transferred directly to your bank account, as you would your wages. You should also have a clear written statement explaining exactly how you were calculated for redundancy. It is possible to take legal action if your employer fails to pay your redundancy settlement.

The first step is to write a letter explaining what you feel you're owed to your former employer, along with proof to support your claim. You may also be able to contact ACAS (the Advisory, Conciliation and Arbitration Service), which gives independent advice in employment disputes.

An ACAS case manager will determine whether a dispute can be settled without going to a full tribunal. It may be necessary to go to a tribunal if this doesn't resolve the issue. However, it should only be considered a last resort since it can be extremely stressful and expensive. It would help if you talked to the Citizens Advice office in your local area before taking this step forward. 

Who can get statutory redundancy pay

Redundancy pay is owed to you if:

• Working for the same employer for at least two years

• Redundancies were necessary at your workplace, and you lost your job as a result

Statutory redundancy pay is available only to employees.

The contract or the employer may say you are self-employed, but you are an employee. For example, you might not be an employee if you work for an agency or aren't guaranteed employment.

How Much Statutory Redundancy is Pay?

Your employees' length of service, weekly pay, and age will determine the minimum redundancy pay. Your employees may still be made redundant after April 6 2021, with £544 weekly compensation and a maximum statutory redundancy pay of £16,320.

Employees entitled to these benefits have the right to:

• A half-week's pay is paid for every year the employee stays under 22.

• The employee received one week's pay every year between the ages of 22 and 41.

• A half-week's pay is accrued for every year an employee turns 41.

How much redundancy pay do you get?

A worker who has worked for her employer for over two years is entitled to redundancy pay. It's a good idea to check your employment status with your employer if you aren't sure if you are an employee.

Working out redundancy pay

The amount of redundancy pay you receive depends on the following:

• Your age

• Working for your employer for how long

The contract might guarantee more than the minimum ('statutory').

There is a tax-free cap of £30,000 on redundancy pay.

If you decline an offer of a suitable alternative job from your employer, you will not be eligible for statutory redundancy pay.

Redundancy pay is based on the following:

• A person's weekly pay before tax (gross pay)

• Your number of years of continuous employment with your employer ('continued employment)

• Your age

Weekly pay should also include the following:

• Your employer must offer, and you must work regular overtime as provided in your contract

• Payouts or bonuses in commissions

From the ages of 17 to 21

After every full year of employment, half a week's pay must be paid to you.

From 22 to 40 years old

Employers must provide you with the following:

• A week's pay per year from age 22 onwards

• One-half of a week's pay for each full year that you worked before

You must be 41 years or older.

Employers must provide you with the following:

• The pay you receive for each full year you work from age 41 onwards is 1.5 weeks

• A week's pay for every year you worked between the ages of 22 and 40

• If you worked between 17 and 21 years, you would receive half a week's pay

It is your employer's responsibility to explain the amount of redundancy pay in writing. To use the calculator, you will need your weekly take-home pay (before tax and other deductions).

Working out redundancy pay when you are paid in lieu of notice

When you quit work immediately but still get paid for your notice period, you are called a payment in lieu of notice (PILON). 

It would help if you worked out redundancy pay based on your employer's 'relevant date' when working out your tenure. If you had received PILON, your employment would end on the date you worked for the remainder of your statutory notice period.

The redundancy payment calculation is based on how long you worked for your employer.

How much is redundancy pay?

Employees who fulfil the continuous service requirement are entitled to minimum payment based on their gross weekly pay, age, and length of service.

The Employment Rights Act 1996 lays out the formula that should be used to calculate the statutory redundancy payment. It is determined by measuring the length of continuous employment following the termination date. Thus, the number of years of service within a certain period is determined by counting backwards from the last day of employment.

A termination date is considered the date on which any notice expires, from which the length of service should be calculated. Generally, the relevant date is when the statutory minimum notice would have expired had it been given if the employee had been made redundant without it, for example, if pay in lieu of notice is given.

A redundancy pay calculation is based on the following formula:

• In your employment, the employee received 0.5 weeks' pay for every year under 22

• 1 week's pay for every year they worked between 22 and 40

• Each year they remained in your employ, they received 1.5 weeks' pay.

For statutory redundancy pay calculations, the employee's service length is capped at 20 years, and the weekly pay is capped at £571 (from 6 April 2022). The calculation does not take into account additional years of service or earnings. Consequently, an employee can receive up to £17,130 in statutory redundancy pay. Contractual redundancy pay can be much higher, but it cannot fall below the statutory minimum rate by law. The law does not allow you to contract away an employee's basic legal rights.

A week's pay is calculated as the average of your earnings during the 12 weeks before you're given notice. Employees' pay is based on their normal working hours or the average of the past 12 weeks working hours. In addition to overtime, bonuses and commissions should be included if the contract allows them.

The employee must be notified in writing of their redundancy pay. If you need help with your figures, you can use GOV.UK's redundancy pay calculator. Further, the employee needs to know when and how their redundancy pay will be provided, such as part of their paycheck or separately. The employee's final salary should be paid before or on the day of the redundancy payment. In the event of an agreement to a different date, the contract should also be in writing.