Redundancy entitlements

Tina Chander from law firm Wright Hassall has some advice about entitlements if you or one of your employees are facing redundancy.

Accountancy, Calculator

 

Upon a redundancy dismissal, an employee is entitled to their usual basic entitlements of notice in accordance with their contract of employment and payment for their accrued but untaken holiday at the effective date of termination.

The employee may also be entitled to a redundancy payment. This will usually be a statutory redundancy payment. However, employers may provide employees with enhanced redundancy payments over and above the statutory entitlement if they so desire.

Eligibility

To be eligible for a statutory redundancy payment, the individual must be an employee and must have at least two years of continuous service with their employer at the date of termination.

Exclusions

If the employee has unreasonably refused suitable alternative employment with the employer, the employee will lose their right to a statutory redundancy payment.

Furthermore, if the employee has been dismissed summarily for gross misconduct, the employee has no entitlement to a statutory redundancy payment.

NOTE: Employers cannot get employees to contract out of the right to a statutory redundancy payment. If such clauses appear in a contract of employment, they are likely to be deemed void by an employment tribunal.

Calculation

The statutory redundancy payment an employee is entitled to is calculated based on their length of service (based on complete years up to a maximum of 20 years), age and salary at the effective date of termination.

The following multiplier is applied based on the age of the employee at the time of the redundancy:

  • One and a half weeks’ pay for each complete year of service in which the employee was aged 41 or over at the beginning of the year;
  • One week’s pay for each complete year of service in which the employee was aged 22-40 at the beginning of the year; and
  • Half a week’s pay for each complete year of service in which the employee was under the age of 22 for any part of the year.
  • A week’s pay is capped by statute. Currently, the cap is £538 per week.

The first £30,000 of a statutory redundancy payment can be paid tax-free. Anything over and above this amount will be subject to the employee’s usual deductions.

*For more details about the redundancy process, click here. A full guide on every aspect of the process is available here.



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