FAQs: Redundancy – calculating payouts

Q Why was there no increase in the maximum week’s pay for calculating statutory redundancy pay this year?

A The amount changes on 1 February each year because of the Employment Relations Act 1999, which provides that the figure increases (or decreases) in line with the retail prices index for September of the previous year.

However, in a one-off measure designed to mitigate the effects of recession, the government legislated to increase the maximum from £350 to £380 on 1 October last year.

The same legislation also excluded the operation of the index on this one occasion, so the maximum week’s pay for statutory redundancy pay remained at £380 on 1 February. The next change in the maximum is therefore due on 1 February 2011.

Q Does an employee made redundant while on maternity leave have any special rights?

A Yes, an employee on maternity leave is entitled to priority as far as suitable alternative employment is concerned. Where an appropriate vacancy exists, she must be offered the alternative employment under a new contract that begins on the day immediately following the day on which her previous contract comes to an end.

The new work must be suitable in relation to the employee and appropriate for her to do in the circumstances, and the new contract provisions must not be substantially less favourable than those of the previous contract.

Where a suitable vacancy exists and the employer fails to offer it, the employee’s dismissal will be automatically unfair. However, where the employee rejects the alternative employment, or no suitable vacancy exists, the employer is entitled to dismiss by reason of redundancy.

The same applies to employees on adoption leave.

In addition, employers need to be aware that the draft Additional Paternity Leave Regulations 2010 mirror the applicable wording in the Maternity and Parental Leave etc Regulations 1999, so employees who are made redundant while on additional paternity leave will also be entitled to preferential treatment.

The Additional Paternity Leave Regulations 2010 are due to come into force this April and will affect the parents of babies due on or after 3 April 2011, and adoptive parents notified of having been matched for adoption on or after that date.

Q Where a redundancy will take effect before a woman goes on maternity leave, is she entitled to preferential treatment with regard to being offered suitable alternative employment?

A No. An employer will be under an obligation to look for suitable alternative employment, in the same way as it would be if she were not pregnant, but it will not be under the strict obligation, outlined in reg.10 of the Maternity and Parental Leave etc Regulations 1999, to offer her any suitable alternative vacancy she can perform, even if she is not the best candidate. This is triggered only if the woman is made redundant during maternity leave.

Having said that, employers should always be cautious about dismissing pregnant employees because of the risk of a sex discrimination claim.

Q If an employer is recruiting to a position from which an employee was recently made redundant, does the employer have to offer the job to the redundant employee?

A No. There is no duty on employers to offer employment to an employee who was made redundant from a position to which they are recruiting.

Employers should be cautious when deciding to recruit to the position soon after the redundancy, as this could raise doubts about whether or not the dismissal was due to a genuine redundancy situation.

However, a dismissal can be a fair dismissal for redundancy, even when it becomes necessary to recruit to that position soon after the redundancy. Employers should ensure that they can show that there were genuine reasons for the redundancy at the time of the dismissal, but that the situation has since changed – for example, due to an upturn in demand.

It is good practice for employers to keep in touch with employees dismissed for redundancy with a view to notifying them of vacancies that arise, but there is no requirement on them to do so.

Q If the employer does re-employ someone who has been made redundant, can the employee retain their statutory redundancy pay?

A An employee who is re-employed after having been made redundant can retain their statutory redundancy payment. However, under s.214 of the Employment Rights Act 1996, the receipt of the redundancy payment will break the employee’s continuity of employment for the purposes of the statutory redundancy pay scheme. Therefore, if the employee is made redundant again in the future, they will not be entitled to a statutory redundancy payment until they have accrued another two years’ service. The statutory redundancy pay calculation will be based on the latter period of service only.

An employer should be cautious if there is no break in employment between termination on the grounds of redundancy and the employee recommencing work. This may cast doubt over the genuineness of the redundancy and may cause HM Revenue and Customs to question the tax-free status of the redundancy payment. The employer should therefore ensure it can demonstrate that the redundancy was genuine.

Q Where an employer has granted an employee’s request to work beyond retirement age, but then that employee subsequently becomes redundant, are they entitled to statutory redundancy pay?

A Yes. The upper age limit of 65 on statutory redundancy payments was removed by the Employment Equality (Age) Regulations 2006. All employees with two or more years’ continuous employment are entitled to receive a statutory redundancy payment, regardless of their age.

The statutory payment is calculated according to the employee’s age, length of service (subject to a maximum of 20 years), and amount of a week’s pay (subject to the statutory cap – currently £380).

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