Minimum Redundancy Pay

If your organisation needs to make redundancies, the affected employees may have the right to redundancy pay. The minimum redundancy pay depends on the employee’s age and how long they have worked for you. It’s essential to calculate an employee’s redundancy pay correctly and pay it on time. If you don’t, the employee may issue tribunal proceedings against you.

At GAP HR, we offer dedicated HR support to small businesses throughout the UK. Our HR and employment law specialists have decades of experience in assisting businesses like yours to navigate the complexities of managing staff, ensuring your processes are legally compliant, and significantly reducing the risk of legal disputes.

Call us now on 01491 598 600 or email us on  cw@gaphr.co.uk and we will be delighted to help you.

When Do You Need To Pay Redundancy?

You must pay redundancy to any affected employee who has worked for you continuously for at least two years.

What Is The Minimum Redundancy Pay?

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

Statutory redundancy is the minimum redundancy pay your employees are entitled to. The payment is calculated according to the employee’s gross salary, age, and length of service.

  • Employees under the age of 22 are entitled to half a week’s pay for each full year they worked for you.
  • Employees aged between 22 and 40 are entitled to one week’s pay for each full year they worked for you.
  • Employees aged 41 and over are entitled to 1.5 weeks’ pay for each full year they worked for you.

The higher rates only apply to the years the employee worked for you whilst they were that age. So, for example, if an employee worked for you from the ages of 22 to 43, they are entitled to one week’s full pay for 18 years, and 1.5 weeks’ pay for the full years they worked for you from 41 until 43.

Contractual redundancy pay is enhanced redundancy pay that you, as an employer, choose to offer. You have no legal obligation to offer enhanced redundancy pay, but you may elect to do so for several reasons. For example, you may wish to show your gratitude to staff members selected for redundancy, or you may seek to incentivise employees to take voluntary redundancy. Examples of the ways in which you might enhance an employee’s redundancy pay include dispensing with the requirement that they have continuously worked for you for two years or offering two or more weeks’ pay for each full year of their employment.

It’s important to note that your obligation to pay enhanced redundancy can be express or implied. It can arise expressly from contractual terms, both written and oral, or other documentation such as employee policies, handbooks, or collective agreements. However, even if you have not expressly agreed to pay enhanced redundancy to a particular employee, an obligation to do so might be implied from your previous conduct. If you routinely make enhanced redundancy payments, an employee who has not been offered the same may bring employment tribunal proceedings claiming enhanced redundancy on the basis that your custom and practice affords them an implied contractual right to it, even if no such right is stated in their contract or other documentation.

Accordingly, you must tread carefully when exercising your discretion and offering enhanced redundancy payments, to avoid setting a precedent you are bound by when making subsequent redundancies. Speak to us if you are unsure. Our HR specialists will advise on the steps you can take to mitigate this risk.

Is There A Maximum Redundancy Pay?

There are no limits on the amount of contractual redundancy pay you can offer those employees selected for dismissal. However, there are limits on the amount of statutory redundancy pay an employee is entitled to.

Firstly, the weekly amount used to calculate statutory redundancy pay is currently capped at £700, regardless of the employee’s weekly salary. Secondly, you are only obliged to pay statutory redundancy for a maximum of 20 years. If your employee has worked for you for over 20 years, the additional years are disregarded for the purposes of the calculation.

Accordingly, as things stand, the maximum statutory redundancy pay an employee is entitled to is £700 x 20, totalling £21,000.

What Happens If You Do Not Pay The Minimum Redundancy Pay?

If you do not pay an employee the correct redundancy, whether statutory or contractual, or you do not pay it on time, they can bring an employment tribunal claim against you. Time limits apply to claims of this nature. If the redundancy you have failed to pay is statutory, the employee must bring a claim within six months from the date on which their employment with you ended. If the redundancy you have failed to pay is contractual, the employee must commence proceedings within three months of their employment ending.

Call us now on 01491 598 600 or email us on  cw@gaphr.co.uk and we will be delighted to help you.

Minimum redundancy pay

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