Redundancy pay explained – If you need to make staff redundant, you must give them a written statement setting out the amount of their redundancy payment and how it was calculated.
It is important to get this right, so start with the employee’s employment contract. This should set out what you have agreed to pay in lieu of notice and for holiday accrued. These amounts will always be taxable. The contract may also include a formula for calculating any contractual redundancy pay.
As a minimum, you are required to pay an amount of statutory redundancy to those employees who have worked for the business for at least two years. You should count any period spent on furlough as part of that two-year period.
Check the employee’s date of birth and exactly when they started working for your business.
The statutory redundancy pay is based on the employee’s average weekly pay, capped at £538 (£560 in Northern Ireland). This is normally calculated from the pay received in the 12 weeks that end on the day before you issue the redundancy notice. However, you are required to use the employee’s normal pay, not any reduced amount while on furlough.
The redundancy pay is calculated as:
- 5 weeks’ pay for each full year of employment after the employee’s 41st birthday, plus
- 1 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 that may be payable to a long-serving employee is £16,140. All statutory redundancy pay is free of tax and NIC.
For more news see here.