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 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.

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 a half week’s pay for each full year when they are 41 or older

Your weekly pay is the average you earned per week over the 12 weeks before the day you got your redundancy notice.

The current maximum statutory pay for a week is £643 and the maximum statutory redundancy pay in total is £19,290.

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

A 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 to check contracts and employee handbooks to see if they state anything about this.

If you find that the contractual notice period is stated in contracts and handbooks, you must ensure this isn’t less than the statutory amount. You must also clarify to employees how this is calculated and when it will be paid.

Furthermore, to work this out, you must calculate the length of the statutory notice 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. There is no minimum requirement for working hours in this instance/

When working out how to calculate redundancy pay for a part-time employee, you must take into 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 with 5 years and 11 months service is entitled to 5 weeks statutory notice period. 

The maximum statutory notice period is 12 weeks. Therefore an employee with 20 years and 11 months service is entitled to the full 12 weeks. The redundancy payment for this employee will be based on 21 years of service if they are dismissed with a payment in lieu of notice because the statutory notice period of 12 weeks would give them an additional full year of service.

Conclusion

When calculating statutory redundancy pay for your employees, you must 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 in calculating redundancy pay from our outsourced HR team, contact us now.