Redundancy payments

Here we look at legislation relating to redundancy payments.

When is an employee entitled to a redundancy payment?

An employee is entitled to a statutory redundancy payment if they have been working for the employer continuously for two years.

How are payments calculated?

A statutory redundancy payment is calculated with reference to age, length of service and statutory weekly maximum:

  • The minimum age that a statutory redundancy payment may be made is 18 to a maximum of 65.
  • If an employee is over the age of 64, a statutory redundancy payment is reduced by one-twelfth for each month by which the individual’s age exceeds 64.

The maximum number of years to be taken into account for length of service is 20 years based on a sliding scale dependant on each completed year of continuous service and age:

  • Between the age of 18 and 21, an employee will receive half a week’s pay
  • Between the age of 22 and 40, an employee will receive one week’s pay
  • Between the age of 41 and 65, an employee will receive one and a half weeks’ pay.

What are the maximum statutory payments?

The statutory limit for weekly pay is currently £280, which increases annually from 1 February and normally at a rate of £10 per week. The maximum statutory redundancy payment is currently £8,400. Some employers pay in excess of the statutory redundancy payment, such as one month’s full pay for each year of service. Unless such a payment expressly includes reference to a statutory redundancy payment, a redundant employee will still be entitled to claim an additional statutory redundancy payment.

Does offering alternative employment affect payment rights?

If an employee unreasonably refuses an offer of suitable alternative employment they will lose the entitlement to a statutory redundancy payment. However, the employer must show that both the offer was suitable and that the employee’s refusal was unreasonable.

‘Suitability’ will include objective job-related factors, such as pay, status, hours, location.

‘Reasonableness of a refusal’ will include an employee’s individual circumstances, such as domestic factors, health, extra travelling time, expense, childcare responsibilities and status of the job (the higher the status, the more likely an employment tribunal would expect an employee to travel).

An employee can try out an alternative job for a trial period of four weeks. The trial period starts on the date that the employee begins the new job and ends four weeks (less a day) later, by which time the employee must have decided whether or not to accept the new job permanently. If the employee works beyond the four-week period, they will lose the right to claim a statutory redundancy payment. This time limit can be extended by agreement between the employee and the employer if it is for the purpose of retraining an employee for a new job only and providing certain conditions are met:

  • it is in writing specifying the date when the retraining ends
  • it specifies the terms of conditions of employment that will apply at the end of the trial period
  • it is agreed before the trial period starts.

Key points to consider when dealing with a redundancy

Even where there is a genuine redundancy situation, the employee may have been unfairly dismissed. A redundancy dismissal is unfair if there has been inadequate consultation, unfair selection or if there has been a failure to offer available alternative employment.

The most important requirement is for the employer to consult adequately with the employee before dismissal. The only exception to this requirement is where such consultation would be utterly pointless or futile.

The employer is expected to offer any available alternative employment, which the employee is capable of doing.

Watch out for direct and indirect discrimination against ethnic minority employees, employees with a disability and employees that are pregnant, as this could in certain circumstances be unlawful.

Key legislative provisions and guidance

  • Trade Union and Labour Relations (Consolidation) Act 1992 (redundancy)
  • Employment Rights Act 1996 (redundancy and unfair dismissal)
  • Employment Relations Act 1999 (right to be accompanied)
  • Maternity and Parental Leave Regulations 1999 (redundancy)
  • Employment Act 2002 (disciplinary, dismissal and grievance procedures)
  • Employment Act 2002 (Dispute Resolution) Regulations 2004 (detail to the Act)
  • Information and Consultation of Employees Regulations (expected on 6 April 2005)
  • ACAS code of practice on disciplinary and grievance procedures

Further information

www.acas.org.uk

The ACAS code of practice can be viewed at www.acas.org.uk/12335_cofp.pdf

The law relating to redundancy is generally found in the Employment Rights Act 1996 http://www.hmso.gov.uk/acts/acts1996/1996018.htm as amended and the Trade Union and Labour Relations (Consolidation) Act 1992 http://www.hmso.gov.uk/acts/acts1992/Ukpga_19920052_en_1.htm

www.hmso.gov.uk/acts.htm provides Acts of Parliament and Statutory Instruments

This policy guide is not intended to be a definitive analysis of legislative or other changes and professional advice should be taken before any course of action is pursued.

 

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