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Redundancy Pay

Will I receive a redundancy payment:

Yes. You will receive a lump sum payment if: -

• You are made redundant;
• You have at least two years continuous service since the age of 18;
• You must be working as an employee under a contract of employment. This does not mean that you physically need to have a written contract, as many employers regrettably do not provide this. You will still be an employee working under a contract even if there is nothing in writing. Self-employed people and members of a partnership do not qualify.

Directors may be employees if they work under a contract of employment. They are unlikely to qualify, however, if they have a controlling interest in the company.

You will also need to have been actually dismissed- i.e. not resigned. You may be invited to take voluntary redundancy, but this should still qualify as a dismissal by reason of redundancy.

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What are the payments?

Many employers will only pay the statutory minimum redundancy pay, whilst others are far more generous, for example, 1 months gross salary for every year worked. Generally, blue-chip companies and financial institutions are found to be more generous with their payments. It is also the case, that even where an employer may only pay the statutory minimum, they will enhance the redundancy payment by making an ex-gratia lump sum without reference to a specific formula. This is often the case where the dismissal based on a purported redundancy is on shaky grounds. An employer will often make an enhanced payment to take into account any shortcomings in the redundancy procedure and to ward of any potential tribunal claim. An employee in turn will often be asked to sign a compromise agreement which will prevent you form bringing any subsequent unfair dismissal claim. A specialist employment law solicitor is best placed to negotiate a severance package for you after taking into account the strength of your claim.

If you are being paid only the statutory amount, this will be governed by:

• How long you have been continuously employed by your employer;
• How your years of continuous service relate to a particular age band;
• Your weekly pay, up to a legal limit, revised as at 1st February 2007 to £310.00.

For each complete year of continuous service between the ages of 18 and 21, you will receive half a week's pay.

For each complete year of continuous service between the ages of 22 and 40, you will receive one week's pay.

For each complete year of continuous service between the ages of 41 and 65 you will receive 1½ weeks' pay. However, if you are over 64, the total amount of the payment you receive will be reduced.

To help you work out your statutory payment, you can use the Ready Reckoner for calculating the number of weeks' pay due. Don't forget, the week's pay is subject to a maximum of £310.00.

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When will my Redundancy payments become due:

Your employer must give you a lump-sum payment if:

• You are made redundant
• You have at least two years continuous service since the age of 18
• Directors may be employees if they work under a contract of employment

To qualify:

• You will receive payment only if you are an employee working under a contract of employment
• You will not qualify if you are self-employed or member of a partnership
• Directors will not qualify if they have a controlling interest in the company or if they deal only with company policy and go to board meetings in return for fees
• If you reach the age of 65 before the date of dismissal
• If you are a Merchant Seaman, former registered dock worker engaged in dock work or share fisherman
• if you are a Crown Servant, member of the Armed Forces or Police services
• If you are an apprentice who is not an employee at the end of their training
• If you are a domestic servant who is a member of the employer's immediate family

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What a 'Weeks Pay' Means:

A week's pay is that which the you are entitled to under your terms of your contract at the 'calculation date'. The 'calculation date' is the date on which your employer gives you the minimum notice to which you are legally entitled. If the pay varies (eg: through piece-work) the amount of the week's pay is averaged over the 12 weeks prior to the 'calculation date'. There is a maximum statutory limit (£250 from February 1st 2002, subject to review) on the amount of a week's pay that may be reckoned. This figure is reviewed annually. Employers may pay in excess of the statutory minimum.

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Do I need to make a claim for a payment?

There is no need for you to make a claim unless your employer fails to pay you or disputes your entitlement. If there is a failure to pay, you must make a written request to your employer or to an employment tribunal within six months of the date the job ended.

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Is statutory redundancy pay taxable?

You should not have to pay tax on redundancy payment up to £30,000 as a result of Inland Revenue exemptions.