If your organisation needs to make redundancies, the affected employees may have the right to redundancy pay. The minimum redundancy pay depends on the employee’s age and how long they have worked for you. It’s essential to calculate an employee’s redundancy pay correctly and pay it on time. If you don’t, the employee may issue tribunal proceedings against you.
At GAP HR, we offer dedicated HR support to small businesses throughout the UK. Our HR and employment law specialists have decades of experience in assisting businesses like yours to navigate the complexities of managing staff, ensuring your processes are legally compliant, and significantly reducing the risk of legal disputes.
Call us now on 01491 598 600 or email us on cw@gaphr.co.uk and we will be delighted to help you.
When Do You Need To Pay Redundancy?
You must pay redundancy to any affected employee who has worked for you continuously for at least two years.
What Is The Minimum Redundancy Pay?
There are two types of redundancy pay: statutory and enhanced.
Statutory redundancy is the minimum redundancy pay your employees are entitled to. The amount you have to pay is set every year by the government.
Firstly, the weekly amount used to calculate statutory redundancy pay is currently (April 2024-25) capped at £700 tax free, regardless of the employee’s weekly salary. This means that if they earn more than £700/week, they would not receive more statutory redundancy pay. If they earn less than £700/week, they would receive their normal weekly wage tax free.
The final payment is calculated according to the employee’s gross salary, length of service, and age:
- Employees under the age of 22 are entitled to half a week’s pay for each full year they worked for you.
- Employees aged between 22 and 40 are entitled to one week’s pay for each full year they worked for you.
- Employees aged 41 and over are entitled to 1.5 weeks’ pay for each full year they worked for you.
The higher weighting only applies to the years the employee worked for you whilst they were that age. So, for example, if an employee worked for you from the ages of 22 to 43, they are entitled to one week’s full pay for 18 years, and 1.5 weeks’ pay for the full years they worked for you from 41 until 43.
Enhanced redundancy pay is additional redundancy pay that you, as an employer, choose to offer. You have no legal obligation to offer enhanced redundancy pay, but you may elect to do so for several reasons. For example, you may seek to encourage employees to take voluntary redundancy. Examples of the ways in which you might enhance an employee’s redundancy pay include removing the cap on the statutory redundancy pay (so that they get their normal weekly wage tax free), or offering a one off bonus for applying for voluntary redundancy.
You must tread carefully when exercising your discretion and offering enhanced redundancy payments, to avoid setting a precedent you are bound by when making subsequent redundancies. Speak to us if you are unsure. Our HR specialists will advise on the steps you can take to mitigate this risk.
Is There A Maximum Redundancy Pay?
There are no limits on the amount of contractual redundancy pay you can offer those employees selected for dismissal. However, there are limits on the amount of statutory redundancy pay an employee is entitled to.
Firstly, the weekly amount used to calculate statutory redundancy pay is currently (April 2024-25) capped at £700 tax free per year of service, regardless of the employee’s weekly salary.
This means that if they earn more than £700/week, they would not receive more statutory redundancy pay. If they earn less than £700/week, they would receive their normal weekly wage tax free.
Secondly, you are only obliged to pay statutory redundancy for a maximum of 20 years. If your employee has worked for you for over 20 years, the additional years are disregarded for the purposes of the calculation.
Accordingly, as things stand, the maximum statutory redundancy pay an employee is entitled to is £21,000, which you would only get if you had been employed for 20 years while you were over 42 years old.
20 years’ service x 1.5 weighting (due to age) x £700 = £21000 tax free.
What Happens If You Do Not Pay The Minimum Redundancy Pay?
If you do not pay an employee the correct statutory redundancy pay or you do not pay it on time, they can bring an employment tribunal claim against you. They currently have to do this within 6 months of the date of termination. This may change under the new government. If you have promised them enhanced redundancy pay, you are also legally obliged to pay that on time, or also face a tribunal claim.
Call us now on 01491 598 600 or email us on cw@gaphr.co.uk and we will be delighted to help you.
