Redundancy Payment

Definition of Redundancy Payment

Redundancy payment is the sum an employee dismissed because of redundancy is entitled to receive from their employer under the Employment Rights Act 1996. The sum is calculated as follows:

1. One and a half weeks’ pay for each year of the employee’s continuous employment when aged 41 or more.
2. One week’s pay for each year of service between the ages of 22 and 41.
3. Half a week’s pay for each year below the age of 22.

Despite laws to combat age discrimination, the sliding scale based on age remains. The upper and lower age limits that previously applied have been abolished.

Continuous employment exceeding 20 years is ignored, and a maximum weekly pay amount used in the calculation is prescribed by regulations and reviewed annually. In 2016-17, the limit was £479. Redundancy costs are met entirely by the employer.

Examples

1. Example 1:

   • An employee aged 45 with 25 years of continuous service:
     • Pay calculation (assuming weekly pay is £500):
       • Years aged 41+: 4 x 1.5 weeks = 6 weeks
       • Years aged 22-41: 19 x 1 week = 19 weeks
       • Years below 22: 3 x 0.5 weeks = 1.5 weeks
     • Total redundancy pay: 26.5 weeks x £479 (maximize weekly limit) = £12,689.50

2. Example 2:

   • An employee aged 30 with 5 years of continuous service:
     • Pay calculation (assuming weekly pay is £450):
       • Years aged 41+: 0 weeks
       • Years aged 22-41: 8 x 1 week = 8 weeks
       • Years below 22: 2 x 0.5 weeks = 1 week
     • Total redundancy pay: 9 weeks x £450 = £4,050

Frequently Asked Questions

1. What qualifies as continuous employment?

Continuous employment refers to an uninterrupted employment span with the same employer, where predefined breaks such as holidays or sick leave do not interrupt the continuity.

2. Is redundancy payment taxable?

It depends on the amount. Payments up to £30,000 are tax-free. Any amount above £30,000 is subject to income tax.

3. Can redundancy payment be higher than the statutory requirement?

Yes. Employers can offer enhanced redundancy packages above statutory minimums through contractual agreements or at their discretion.

4. Who is eligible for redundancy pay?

Typically, employees with at least two years of continuous service with their employer are eligible for redundancy pay.

5. What if my employer cannot pay the redundancy sum?

If an employer cannot pay due to insolvency, employees may claim redundancy payments from the National Insurance Fund.

Related Terms

Termination Benefits

These are various forms of compensations and benefits, including redundancy payments, provided to employees upon termination of employment.

Employment Tribunal

A judicial body in the UK that resolves disputes between employers and employees regarding employment rights, including redundancy claims.

Statutory Redundancy Pay

The minimum amount an employer must pay to an employee dismissed due to redundancy, as per legal standards.

Online Resources

• Gov.uk - Redundancy Pay
• ACAS - Statutory Redundancy Pay
• Citizens Advice - Redundancy

Suggested Books for Further Studies

1. “Redundancy: The Law and Practice” by John Betts

   • Comprehensive guide on redundancy law and practical advice.

2. “Employment Law: The Essentials” by David Lewis and Malcolm Sargeant

   • Overview of key aspects of employment law, including redundancy.

3. “HR Law: The Practical Guide” by Sarah Podro

   • Practical insights and legal considerations for HR practices, including redundancy procedures.

Accounting Basics: Redundancy Payment Fundamentals Quiz

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