Redundancy pay

Written by yasiradnan94
11 December 2020

Most businesses have had a very difficult year due to the pandemic. Unfortunately, some have had to make major changes including letting staff go and restructuring their businesses resulting in redundancies. Making staff redundant is hard for any small business as employees can become as close as family.

Any employees you let go are entitled to a written statement setting out the amount of their redundancy payment and how it was calculated so it is important to get this right.

Start by looking at the employees’ employment contracts as these may set out a formula for calculating redundancy pay and how much you have agreed to pay in lieu of notice and for holiday accrued. You also need to know the employees’ dates of birth and exactly when they started working for your business.

As a minimum, you are required to pay statutory redundancy to employees with at least two years’ service, including time spent on furlough.

The calculation is based on an employee’s average weekly pay, capped at £538. This is normally calculated from the pay received in the 12 weeks ending on the day before you issue the redundancy notice. However you are required to use the employee’s normal pay before it was reduced by 80% for furlough purposes.

The redundancy pay is calculated as:

·        one and a half weeks’ pay for each full year of employment after the employee’s 41st birthday; plus

·        one week’s pay for each full year of employment after the employee’s 22nd birthday; plus

·        half a week’s pay for each full year of employment up to the employee’s 22nd birthday.

Service beyond 20 years is ignored so the maximum amount of statutory redundancy payable to a long-serving employee is £16,140.

If you are restructuring a department or your entire businesses then you will need to give thought to redundancies and the processes involved.

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