The Right to Redundancy Pay

Redundancy can be a fair reason for dismissal but a thorough process should be followed. The employer must consult with the employee first, have a fair selection process and that alternative employment has been considered and offered in order to avoid dismissal.

When an employee is made redundant, they might have a right to redundancy pay. Employers can check eligibility for redundancy pay before calculating how much they should pay.

The Right to Redundancy Pay

The right to redundancy pay is no absolute and you must be an employee to be eligible to receive a payment in the first place. This does not include those who are self-employed or people undertaking contractual work.

Employees must also have been in continuous employment with their current employer for no less than two years (period of time between commencement of employment and termination date) to have the right to redundancy pay also.

Exclusions from Redundancy Payments

Of course, the right to redundancy pay will not affect every employee. When an employee is made redundant, the employer or an associated employer should, where possible, offer alternative employment (or failure to do so can lead to unfair dismissal claims). If the employee unreasonably refuses the offer, then they will then not have the right to redundancy pay at all.

There are other cases where the right to redundancy pay will not be in effect and employees are not eligible for payments. For example, if the employee has been summarily dismissed or an exemption order is in place then this will likely have an impact on the right to redundancy pay.

How to Calculate Redundancy Pay

Finding out if the employee has a right to redundancy pay is the first step and then you should consider how redundancy pay is calculated. This is set by The Employment Rights Act (1996). Employers must first determine the period of time the employee has continuously been employed.

Starting with the date of the termination, work backwards to count the number of years the individual has been working for the company. This allows an employer to determine the amount that is payable for each of the years of employment.

For each, the pay should amount to:

  • 1.5 week’s wage for every year of employment and the employee is over 41.
  • A week’s wage for every year of employment with the employee 22-40.
  • Half a week’s wage for every year of employment and the employee is 21 or under.

These are subject to the statutory cap on a week’s pay, and a total of twenty years can be considered. The date of termination is the date on which the termination notice expires, not the day it was given. If an employee is dismissed with unsatisfactory notice or if they receive pay in lieu of notice, then the relevant termination date is the day for which the notice would normally expire and should not affect the right to redundancy pay.

The right to redundancy pay and dismissal are always a delicate time in the life of a business. We can help you navigate the legal requirements and make sure the process is as smooth as possible. If you have any concern or would like any support, please do get in touch or if you simply need more information on whether or not any employees have the right to redundancy pay then get in touch and we would be happy to help.

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