When considering making redundancies, its crucial to understand the intricacies of redundancy pay. Employees often ask, ‘How much is redundancy pay in the UK?’ As an employer, having a clear understanding of your obligations regarding redundancy pay not only equips you to provide accurate information to your employees, but also ensures you avoid an employment tribunal.
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When Do You Have To Pay Redundancy In The UK?
In the UK, there are two distinct types of redundancy pay, known as statutory and enhanced.
You must pay statutory redundancy pay to anyone who has worked for you continuously as an employee for at least two years. Employees work for you under an employment contract, written or verbal. A worker should be treated as an employee for redundancy purposes if most of the following apply to them:
- They are required to work regularly unless they’re on leave, such as on holiday or off sick.
- They are required to work a minimum number of hours and expect payment in return.
- They are managed or supervised by someone who tells them how a piece of work should be done and by when.
- They cannot send somebody else to do their job instead of them.
- They perform their role at your business premises or another address specified by you.
- Your organisation provides the equipment they need to do their job.
Enhanced redundancy pay is an amount over and above statutory redundancy pay that your organisation has agreed to pay to the employee. Crucially, an obligation to pay enhanced redundancy can sometimes be implied from your previous conduct. If you routinely pay enhanced redundancy when dismissing employees, an employee may argue that you are obliged to do the same for them. Arguments of this nature have been upheld by the Employment Tribunal in some cases. Accordingly, you must exercise caution when enhancing employee redundancy pay to avoid inadvertently setting a precedent that you are bound to follow in the future.
How Much Is Redundancy Pay UK?
Statutory Redundancy Pay
Statutory redundancy pay is the legal minimum you have to pay an employee selected for redundancy. It changes every April. In 2024-25 it is £700/week for every week of service, tax free.
It is calculated in accordance with the employee’s length of service, weekly pay, and age as follows:
- Employees aged under 22 – half a week’s pay is required for each complete year of service.
- Employees aged 22-40 – a full week’s pay is required for each complete year of service.
- Employees aged 41 and over – one and a half week’s pay is required for each complete year of service.
Statutory redundancy pay is capped at 20 years and £700 a week at the time of writing, regardless of the employee’s actual weekly wage and length of service. There is additional weighting for the employee’s age while they were working for you. Accordingly, the maximum statutory redundancy pay in 2024-25 is £21,000. The maximum weekly pay amount is changed every April.
Enhanced Redundancy Pay
You can choose how much enhanced redundancy to pay. Some employers choose to remove the cap on the tax free weekly amount, so that employees are paid their actual weekly wage tax free. You can also offer a voluntary redundancy bonus for staff who choose that option. Whatever policy you adopt, you must adhere to it for all staff.
What Happens If You Do Not Make The Correct Redundancy Payment UK?
If you do not pay your employees the correct redundancy, they can issue employment tribunal proceedings against you to recover it. To recover statutory redundancy pay, the employee has to issue their claim within six months of their employment ending. To recover enhanced redundancy pay, the employee must issue proceedings within three months from the date their employment with you ended.
Call us now on 01491 598 600 or email us on cw@gaphr.co.uk and we will be delighted to help you.