Redundancy pay: Show me the money

How is statutory redundancy pay calculated?

A redundancy payment is based on ‘a week’s pay’ and takes into account the employee’s age and the number of years of employment.

To calculate a redundancy payment, the employer must first determine the period, ending with the relevant date (ie the date on which the notice of redundancy expires or the date on which the termination of employment takes effect if no notice is given), during which the employee has been continuously employed. It must then work backwards from the end of that period to calculate the number of complete years of employment falling within that period.

Finally, the employer must allow the appropriate amount for each of those years of employment. At present, where an employee is made redundant after the age of 64, the redundancy payment due is reduced by one-twelfth for every complete month that the employee is over the age of 64.

Employees dismissed by reason of redundancy at or after age 65, or at or after a lower normal retirement age, have no entitlement to a statutory redundancy payment. Service before the age of 18 does not currently count towards a statutory redundancy payment.

What effect will the age discrimination legislation have on the calculation of statutory redundancy payments?

The Employment Equality (Age) Regulations 2006 amend the Employment Rights Act 1996 to remove the upper age limit for entitlement to a statutory redundancy payment. Years of service under the age of 18 will also count towards entitlement.

While the provisions for tapering the award between age 64 and 65 will be removed, a maximum of 20 years’ service will continue to count in calculating the award. Although the government had proposed to change the formula for calculating statutory redundancy payments by removing the age bands used, it recently announced that the current calculation method will be retained. In addition, the two-year continuous employment qualifying requirement is to remain.

If an employee has been given notice of redundancy and wants to leave before the end of the notice period to take up a new job, will this affect their right to a statutory redundancy payment?

The answer depends on whether or not the employer objects to the employee’s premature departure. If the employee gives written notice to terminate their employment on a date earlier than the original termination date given by the employer, they will not lose the right to a statutory redundancy payment if the employer does not object to the early departure.

If, however, the employer does object, it must serve written notice on the employee requiring them to withdraw the notice and continue in employment until the original termination date.

This written notice must state that, if the employee fails to do so, the employer will contest any liability to make a statutory redundancy payment (Employment Rights Act 1996, section 142(2)). If the employee does not comply with the requirements of the employer’s notice, under section 142(1) they are prima facie not then entitled to a statutory redundancy payment.

However, in accordance with section 142(3), the employee is able to apply to an employment tribunal, which will decide whether it would be just and equitable for them to receive the full statutory redundancy payment, part of the payment or no payment at all, having regard to the reasons why they sought to leave employment early, and the reasons why the employer required them to continue in it.

It is likely that, if the employee had to leave on a particular date to take up a new job in circumstances where the new employer was not willing to postpone the start date, the tribunal would hold that it would be just and equitable in the circumstances for the employee to receive the redundancy payment.

Conversely, if the start date of the new job could have been postponed until after the original termination date specified by the employer, and the employer needed the employee to continue in employment until the original termination date to complete an assignment, the tribunal might well decide that the employee’s actions in leaving early were not reasonable in the circumstances, and therefore that it would not be just and equitable for them to receive a redundancy payment.

Ultimately, the issue is one for the tribunal to decide, according to the particular facts of the case.

If the employer and employee mutually agree to substitute an earlier date as the date of termination of employment for the date originally specified by the employer, this issue does not arise, and the employee will receive their statutory redundancy payment in full.

Can an employer require a fixed-term employee to sign a redundancy waiver?

With the repeal of the Employment Rights Act 1996, section 197 by the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 on 1 October 2002, the law on redundancy waivers changed.

A fixed-term employee working on a contract lasting or expected to last for two or more years is no longer able to waive their right to a statutory redundancy payment on termination of the contract. Any waiver signed before 1 October 2002 will still apply, although not where the contract has been renewed or extended after this date.

Retention of statutory redundancy pay essential for older workers

For more on calculating statutory redundancy pay click here

Redundancy pay

‘Appropriate amounts’ for the purposes of calculating a statutory redundancy payment

 

 

  • Half a week’s pay for each year of employment in which the employee was aged between 18 and 21
  • One week’s pay for each year of employment in which the employee was aged between 22 and 40
  • One-and-a-half weeks’ pay for each year of employment in which the employee was aged 41 or over
  • Maximum years taken into account: 20
  • Maximum week’s pay: 290
  • Maximum statutory redundancy payment: 20 years’ continuous employment all accrued while employee aged 41 or over: 20 x 1.5 x 290 = 8,700
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