How to calculate redundancy pay for a redundant employee?
If you are at the stage where you are working out how to calculate redundancy pay, you have already explored other options, followed the right redundancy process, told employees, gone through the consultations, and selected employees for redundancy. Or you may be here just incase you are faced with this difficult decision in the future.
Either way, we have answered all your redundancy questions to help you avoid any mistakes along the way.
How is Redundancy Calculated?
Your employee is entitled to statutory redundancy pay if they have been employed with you for at least 2 years. How many weeks’ pay your staff are entitled to depends on how many years they have worked for you. This is currently capped at the last 20 years they’ve worked for you. Pay also depends on age. When working out how to calculate redundancy pay, you should also be aware that:
- Staff are entitled to half a week’s pay for each full year they were under 22 years
- one week’s pay for each full year they were 22 to 40 years old
- This increases to one and half week’s pay for each full year when they are 41 or older
The current maximum statutory pay for a week is £571 and the maximum statutory redundancy pay in total is £17,130.
You can use the Government statutory redundancy calculator to find out what your employee is entitled to.
It’s also important you check contracts as it may state you need to pay enhanced or contractual redundancy pay. This must not be lower than the statutory amount.
Contractual Notice Period
Contractual notice period is when an employer pays extra money above the statutory amount staff are entitled to. In addition, when working out how to calculate redundancy pay, It’s important you check contracts and employee handbooks incase it states anything about this.
If you find contractual notice period is stated in contracts and handbooks, you must make sure this isn’t less than the statutory amount. You must also make it clear to employees how this is calculated and when it will be paid.
Furthermore, to work this out you must calculate how long the statutory notice would have been and add this to the actual leaving date.
If you would like support with this, you can contact our HR Consultants.
Are part-time employees entitled to redundancy pay?
Yes, part time employees are entitled to redundancy pay. This is whether they work two hours a week or 20 hours.
When working out how to calculate redundancy pay for a part-time employee, you must take in to account their weekly pay, length of service and age. Again, you can use the redundancy calculator on the Government website to work this out.
How to calculate redundancy pay if an employee is paid in lieu of notice?
Where an employee is dismissed with a payment in lieu of notice, to calculate their length of service for the purposes of statutory redundancy pay, the employer should add on the minimum statutory notice period to the employee’s service as at the date on which the employment ends.
Furthermore, an employee’s length of service for redundancy pay purposes should be calculated as at the “relevant date”. Where an employee has been dismissed without the statutory minimum notice to which they are entitled, including where a payment is made in lieu of notice, under the Employment Rights Act the relevant date is the date on which the minimum notice would have expired had it been given.
In addition, if an employee would have reached an anniversary increasing their length of service during the statutory minimum notice period, had they not been dismissed without notice, the extra year should be included in the calculation of their redundancy payment. For example, an employee between the age of 22 to 40 with six years and 11 months’ service is entitled to six weeks’ statutory minimum notice. If the employee is dismissed with a payment in lieu of notice, the redundancy payment will be calculated based on seven years of service because the six weeks’ notice required would have taken them past the anniversary date.
When you calculate statutory redundancy pay for your employees, it’s important you get it right. Failure to do so can lead to an employment tribunal case. You can also read more on how to tackle redundancy in the workplace in our blog. If you would like support on how to calculate redundancy pay from our outsourced HR team, contact us now.