- 6 minute read
- Last updated: 17th October 2019
If you are made redundant from your job, you may be eligible to receive redundancy pay.
There are two types of redundancy payments: statutory and contractual.
Statutory redundancy payments are required by law to be paid by employers.
Contractual redundancy pay refers to any payment stated as a term within your employment contract.
Both types are payable by your employer.
Do you have the right to redundancy pay?
You have the right to statutory redundancy pay where you have worked continuously for your employer for two years, where your job has genuinely become redundant to the operation of the business you were employed by and where you are classed as an employee, whether full time or part time.
Fixed term contracts
If you have worked for your employer on a fixed term contract for at least two years or you have worked on a number of shorter contracts that add up to a continuous period of employment of at least two years, you may be eligible for statutory redundancy pay where your job becomes redundant and ceases to exist, and your fixed term contract is therefore not renewed.
Temporary and short term lay-offs
Where you meet the statutory redundancy pay eligibility conditions and you are temporarily laid off for more than 4 consecutive weeks or more than 6 non consecutive weeks in a period of 13 weeks, you are eligible to claim statutory redundancy pay.
You must, however, inform your employer of your claim no later than 4 weeks after your final non working day in the 4 week or 6 week lay-off period.
What statutory pay will you receive?
If you meet the statutory pay eligibility conditions, you are entitled to receive:
- a half week’s pay for each complete year worked when you were aged under 22
- a full week’s pay for each complete year worked when you were aged 22 or older, and under 41 years of age
- one and a half week’s pay for each complete year worked when you were aged 41 or older
So, if you worked for the same employer continuously for 20 years, from the age of 38 to 58 years old, at a weekly rate of £300 per week, the calculation for your pay would look like this:
- for the 3 years worked under the age of 41, 3 weeks’ pay (£900)
- for the 17 years worked from age 41 until 58, 25 and a half weeks’ pay (£7,650)
Total statutory redundancy pay = £8,550
Is there a maximum to how much statutory pay you can receive?
The number of years you have worked for an employer (your length of service) that can be counted towards redundancy is capped at a maximum of 20 years.
If your redundancy came into effect on or since 6 April 2018, there is a weekly pay cap of £508, and the maximum statutory redundancy pay you can receive is £15,240.
For Northern Ireland, the weekly pay cap is £500.
Contractual redundancy pay is an amount that an employer may pay on top of the standard statutory pay.
Whereas eligibility for statutory pay requires two years’ continuous employment, this is not necessarily required for contractual redundancy pay. Details of the contractual redundancy pay conditions put in place by your employer should be stated in your employment contract.
Where contractual pay is offered, it will generally be written into your employment contract.
Where you do not have an employment contract, speak to your employer and check the staff handbook.
Legally, contractual pay cannot be paid at a lower rate than statutory redundancy pay.
When wouldn’t you be eligible for redundancy pay?
There are a number of scenarios where you would not receive statutory redundancy pay.
Firstly, if after the initial redundancy notification, your employer makes it possible for you to continue your employment, you are not eligible to receive redundancy pay.
Where your employer offers you an alternative role within their business but you reject their offer without a good reason, you may not claim.
If you have worked for your employer for less than two years, you are not eligible to receive statutory redundancy pay.
If you leave to take up employment elsewhere after redundancy is offered to you but before your job comes to an end, you will likely not be eligible.
If you take early retirement, you are not eligible.
Finally, if you are dismissed for misconduct before your job comes to an end, you may not claim redundancy pay.
Furthermore, the following workers are not eligible:
- a close family member (parent, spouse, child) who works as a domestic servant
- crown servants
- armed forces
- police services
- former registered dock workers
- share fishermen
- employee of a foreign government
- apprentices who have not gained employment by the end of their period of training
Employer not paid up or you disagree with the amount of pay?
The first step is always to approach your employer and voice your concerns. You are within your rights to involve your union representative or an employee representative if you feel that this is necessary.
If you are still unhappy with your employer’s response, then you may seek early conciliation by contacting Acas.
Finally, you may take your employer to a tribunal. This process must be started within 6 months of the end of your employment.
Do you pay tax on redundancy pay?
Tax and national insurance must be paid on any salary or holiday payment you receive, however, when it comes to your redundancy payment, the first £30,000 is both tax and national insurance free.
This is regardless of whether your redundancy payment is simply the statutory amount or combined with contractual redundancy pay.
What happens if you’re receiving sick pay?
Generally, sickness payments are made at a lower rate than your normal working rate.
Should you be made redundant while you are receiving sick pay, then your redundancy pay will be calculated using your work rate.
What happens if you’re made redundant while on maternity leave?
When do you receive your redundancy pay?
You should be paid your redundancy payment on either your final day at work or a later date where you have agreed to this.
The payment should be made in the usual way that you have received your salary payments in the past.
Accompanying your redundancy payment, you should be supplied with a written explanation of your payment and how it was calculated.
Why take legal advice?
When facing redundancy and the related employment and financial worries, take specialist legal advice to ensure that you are fully informed on your rights and legal position and that your employer is offering you the correct amount.
Is redundancy pay tax free?
If you have been made redundant you will only pay tax on redundnacy pay over £30,000. You do not pay any National Insurance. Tax and National Insurance are however deducted from other termination payments, for example payment in lieu of holiday or notice.
What is the minimum redundancy pay?
Your redundancy pay is based on your earnings before tax (called gross pay). For each full year you have worked for your employer, it is age dependant. If you are aged between 18 to 22 you will recieve half a week's pay. If you are 22 to 40 you will recieve 1 week's pay.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.