Redundancy pay

This applies to all staff over two years’ service. If staff have under 2 years they are not entitled to statutory redundancy pay.

When you make an employee redundant, you need to pay them their notice period and statutory redundancy pay. Some employers also have an increased level of contractual redundancy pay, but they tend to be corporates or unionised organisations.

Notice period

The amount of notice period you pay is never less than the statutory notice period.

This is one week for every completed year of service, up to a maximum of 12 weeks.

Whatever the longer notice period is, contractual vs statutory, that is the notice period that you are required to pay.

If you have a one month notice period in the contract, if they have been working for you for more than 5 years, the notice period will automatically increase.

The contract cannot overrule employment law.

The notice period would be paid as if it was normal salary, i.e. after tax, NI, and pension have been deducted.

While we have furlough, you can put staff on furlough (if you have followed the furlough scheme rules) for their notice period. You pay them at 100% but claim back the furlough payment from the government.

You can also state that they are “deemed to have taken any outstanding holiday entitlement during gardening leave”. That means that you would not have to pay out any extra for any untaken holiday day.

You can ask them to work their notice but be aware that they are likely to be very unmotivated and may go off sick. As you have the furlough scheme till the end of October 2020, it would be financially better for you to put them on gardening leave and furlough for their notice period.

Statutory redundancy pay

To calculate the amount of statutory redundancy pay, you need to use the following information:

  • You will need
    • their start date with you (from the very first day they worked for you)
    • their date of birth (not just the year)
    • their weekly wage (gross and not the furlough amount)
    • the date that you intend to give them notice, i.e. the date at the start of their notice period

To work out the full amount of statutory redundancy pay you owe them, you can use the government’s redundancy calculator (link at bottom of page) BUT you will need the information above to get the correct amount out of it.

The amount of statutory redundancy pay is decided and capped by the government. Every year in April the capped amount increases, so if you just search for “redundancy pay uk” you may not get this year’s amount. The amount of redundancy pay, the official “week’s wage” is capped in 2020-21 at £538.

So when you are working out the amount you need to pay them, it is either their actual weekly wage OR the capped amount, whichever is the LOWER amount.

The statutory capped amount means that you do not legally have to pay employees anything more than that amount.

Statutory redundancy pay is paid gross, no deductions for tax, NI or pensions. Up to £30,000 can be paid tax free as compensation for redundancy.

The maximum statutory redundancy pay amount that any employee will be paid, no matter how long they have worked for you or how much they earn as a weekly wage is currently £16,100.

It is frustrating when I hear business owners complaining that they want to get rid of staff, but that they hadn’t realised it would be so “expensive” and that they don’t have the money to pay.

If you really don’t have the money to pay your staff what you legally would owe them if they were made redundant, then there are two options:

  • Don’t make them redundant, then you just keep paying their normal wage when they work;
  • Register for voluntary insolvency.

You do not need to pay staff redundancy pay if they have accepted an alternative role in your company. They get the money or the job role, not both.

Another twist in statutory redundancy pay

The amount of statutory redundancy pay is also weighted depending on the age of the employee whilst they have been working for you.

This is important, as you will need to separate out the different components of their gross statutory redundancy pay in their termination letter.

If they were younger than 22 whilst working for you, they get half a week’s wages:

e.g. £538  x   3   x  0.5  = £807 gross pay

If they were between 22 and 40 inclusive, they get one week’s wage:

e.g. £538  x   3   x  1   = £1614 gross pay

If they were older than 41, they get one and a half weeks’ wage:

e.g. £538  x   3   x  1.5   = £2421 gross pay

You can use the government’s statutory redundancy pay calculator to get the gross payment for each employee, but you will need to manually break it down into the age brackets yourself.

Do these calculations before you start any redundancy consultation process, so that you know what the financial impact could be.

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