Redundancy: | Your Feelings | Support for You | Redundancy Pay | Employment Tribunals

Redundancy Pay

When you are made redundant, your employer should give you a P45, either on your last day of work or shortly after (within a few days) you leave the company. If you are entitled to a statutory redundancy payment it must be paid either on your last day of work or within a few days of your departure date. A Statutory requirement is one that is a legal requirement of the employer.
Your employer must by law normally give you a lump-sum redundancy payment if:

  • you are made redundant;
  • you have at least two years continuous service since the age of 18; and
  • you are an employee working under a contract of employment.

Self-employed people and members of a partnership do not qualify under the Act, which is the Employment Rights Act 1996. If you require further information you can go either to your local citizens advice bureau (CAB) or the relevant government web site at:

For those who do qualify for a statutory (this means it is a legal requirement of the employer) redundancy payment. The amount of your lump-sum redundancy payment depends on:

  • how long you have been continuously employed by your employer;
  • how your years of continuous service relate to a particular age band; and
  • your weekly pay, up to a legal limit, which was £270 per week as of 1 August 2004.

For each complete year of continuous service between the ages of 18 and 21, you will receive half a week's pay.
For each complete year of continuous service between the ages of 22 and 40, you will receive one week's pay.
For each complete year of continuous service between the ages of 41 and 65, you will receive 1½ weeks' pay. However, if you are over 64, the total amount of the payment you receive will be reduced by one-twelfth, for each complete month you are over 64. This means that if you are 65 or over you will not be entitled to any statutory redundancy payment from your employer.

The DTI do provide a look up table on their web site to help you calculate your pay entitlement. Select www.dti.gov.uk/er/redundancy/ready.htm to go to this table.
How to work out your length of service
The maximum number of years of continuous service that can be counted for statutory redundancy payments purposes is 20. Length of continuous service is counted backwards from the 'relevant date'. This is generally the date on which the notice given to you ends. However if your employer gives you less than the legal minimum notice, the extra notice, which you should have been given is added onto the period. If under your contract of employment you were entitled to a longer period of notice, and you received this notice but did not work it, the date up to which your continuous service is counted may be later still.

Certain absences - for example, caused by sickness, pregnancy or temporary shortage of work - can count towards continuous service even if your contract of employment was suspended.

When working out your continuous service for a redundancy payment remember that days lost through industrial disputes do not count (although they do not actually break the continuous service). Any days you were on strike will be taken away from your total length of service.

The Definition of A Week's Pay


The amount of a week's pay to be taken into account is the amount you are entitled to under the terms of your contract of employment on the “calculation date”. The calculation date for your redundancy payment will generally be one of the following:

  • The date you were given the minimum notice required by law. This notice is usually one week for each year of service up to a maximum of 12 weeks.
  • If the notice you received was longer than this minimum, the date on which minimum notice would have had to have been given to end your employment on the same day as it actually ended.
  • The date the job ended, if you were not given notice or were not given enough notice.

If you had normal working hours and your pay did not change, for example with the amount of work you did, your week's pay is simply your basic weekly wage or salary. Overtime earnings are not included unless overtime was part of your normal working hours.

If your earnings changed from one week to another because of piecework or productivity bonus arrangements, your week's pay is worked out by multiplying the number of hours you normally worked in a week by your average hourly earnings over the 12 complete weeks of work before the calculation date. Only hours actually worked are taken into account. If the hours used in the calculation include hours outside normal working hours and paid at higher rates, the higher rate is ignored and the hours are worked out at the normal basic rate.

If your normal working hours varied from week to week because of shift work, and your earnings varied as a result, a similar calculation is done but the average hourly earnings are multiplied by the average weekly hours over the same 12 weeks. If you had no fixed working hours, your week's pay will be your average weekly earnings in the 12 weeks before the calculation date.

Your Pension

If your employer plans to dismiss you and you are due to receive a payment under an occupational pension scheme within 90 weeks of the dismissal, your redundancy payment may be reduced.

Tax

You will not pay income tax on a statutory redundancy payment though other redundancy payments you receive from your employer may be taxable - see Inland Revenue booklet Income tax and redundancy: a guide to tax and National Insurance Contributions IR143, which can normally be found on www.inlandrevenue.gov.uk

Job Seekers Allowance:

A statutory redundancy payment will have no effect on any entitlement you may have to a contribution-based Job Seekers Allowance.
If you have any insurance policies, which pay out on redundancy, you must normally register for your Job Seekers allowance, before you will be eligible to claim any insurance related unemployment benefits. In addition there will probably be other requirements of the policy, you should contact their claims department as soon as possible to seek their guidance.

Employees Who May Not be Entitled to A Redundancy Payment

The following categories of employees have no right to a redundancy payment under the Act:

  • Employees whose service ends on or after their 65th birthday.
  • Employees who work in a job with a normal retirement age of less than 65 and who have reached that age.
  • Members of the Armed Forces.
  • House of Lords and House of Commons staff.
  • Apprentices whose service ends at the end of the apprenticeship contract.
  • Employees at the end of a fixed term contract ,which was agreed, renewed or extended before 1 October 2002 and lasts at least two years where they have already given written agreement to waive their entitlement to a redundancy payment at the end of the contract. Any waivers inserted into contracts agreed, renewed or extended after 1 October 2002 will not be valid. Fixed-term employees will have a right to statutory redundancy payments if they have been continuously employed for two years or more and are made redundant – see.
  • Domestic servants working in a private home who are members of the employer's immediate close family.
  • Share fishermen paid only by a share in the proceeds of the catch.
  • Crown servants or employees in a public office.
  • Employees of the Government of an overseas territory.
    Employment in Northern Ireland for the same employer, an associated employer or an employer who takes over the business can be counted, as long as there was no break in service. Employment in Great Britain can count towards a redundancy payment under Northern Ireland law

The Definition of Dismissal

In general, to be due a payment, you must have been dismissed by your employer rather than have resigned and the reason for dismissal must have been redundancy.
If you are laid off, that is, you receive no wages, or put on short time that is, you receive less than half a week's pay, for four weeks in a row or six weeks out of 13 weeks. You may also claim a redundancy payment without waiting to be dismissed for redundancy. You must make your claim in writing to your employer, who may refuse to pay if he or she believes normal working is likely to return within four weeks.

If you are on a fixed-term contract and it ends without being renewed, this counts as a dismissal and you may be due a redundancy payment.
If your employer says that redundancies will be needed and asks for volunteers you will qualify for a payment if you volunteer, as long as your employer actually dismisses you.

If your employer changes in circumstances covered by the Transfer of Undertakings (Protection of Employment) Regulations 1981, your contract of employment will be transferred automatically to the new employer. You have the right to tell the new or previous employer that you do not want to be transferred. However, this will be treated as a resignation, and you will not be entitled to a redundancy payment. The document Transfers of undertakings (PL699) explains the Regulations.
If you have been given notice of redundancy, you may leave early by agreement with the employer and still qualify for payment. But the minimum period of notice, which the employer has to give either by contract or by law, must have started by the time you give your notice.

The Definition of Redundancy

You will be entitled to a payment under the Act only if the reason for your dismissal is redundancy. This means that your dismissal must be caused by your employer's need to reduce his or her workforce. Redundancy may happen because a work place is closing down, or because fewer employees are (or are expected to be) needed for work of a particular kind. Normally your job must have disappeared. It is not redundancy if your employer immediately takes on a direct replacement for you. But it will not matter if your employer is recruiting more workers for work of a different kind, or in another location (unless you were required by contract to move to the new location).

If you are dismissed because of a need to reduce the work force, and one of the remaining employees moves into your job, you will still qualify for a redundancy payment so long as no vacancy exists in the area (type of work and location) where you worked.

 

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