What is Redundancy?
Redundancy is when there is an imminent or current;
closure of a business
closure of a workplace
reduction in the need for employees [Section 139(1) ERA 1996 ]
It is one of the five potentially fair reasons for which your employer can fairly dismiss you [ S98 (2) (c) Employment Rights Act 1996 (ERA 1996 )]. Unlike the other fair reasons for dismissal, in a redundancy you are entitled to a payment for loss of employment.
You have the right to payment if you are made redundant, laid off or kept on short time [Section 135 ERA 1996 ]There are two types of redundancy pay;
- Statutory redundancy pay
- Contractual redundancy pay
Statutory Redundancy Pay
Statutory Redundancy Pay is the minimum that your employer must pay you under the law. You must have a minimum of 2 years continuous service as an employee to qualify for a statutory redundancy payment. You are not entitled to statutory redundancy pay if you resign from your job. If you volunteer for redundancy you are entitled to payment. This is also the case if you leave before the redundancy date by agreement. [S155 of the Employment Rights Act 1996]
Employee’s on a fixed-term contract that has been agreed, renewed or extended since 1 October 2002 are entitled to a statutory redundancy payment as are directors who have a contract of employment. The Employment Equality (Age) Regulations 2006 removed the upper age limit of 65 but this does not affect the age-banded method of calculating statutory redundancy payments.
Section 162 of the Employment Rights Act 1996 sets out how statutory redundancy pay should be calculated. It is calculated by taking your age, years of service and average weekly pay into account to arrive at a figure [Section 119 of the Employment Rights Act 1996](the statutory formula) as follows;
- For your years of employment aged under 21 – Half a week’s pay for each year
- For your years of employment aged 22 to 40 – One week’s pay for each year
- For your years of employment aged over 41 – A week and a half’s pay for each year
Your continuous service is calculated by counting backwards from the date when your employment would end. Weekly pay is limited to a maximum amount of money. Check the current maximum by using the resources below. The maximum number of years’ continuous service used in the calculation is 20. If you have less than 2 years’ service, the Employment Tribunal has the power to extend your period of continuous service so that you can qualify for redundancy pay.
Use the Statutory Redundancy Pay Calculator to work out how much you would be entitled to.
Exclusion From Statutory Redundancy Payments
The following groups of employees do not qualify for redundancy payments;
- Employees employed for less than two years.
- Employee Shareholders
- Merchant seamen, former registered dock workers engaged in dock
- work (covered by other arrangements) or share fishermen
- Crown servants, members of the armed forces or police services
- Apprentices who are not employees at the end of their training
- A domestic servant who is a member of the employer’s immediate
- family. [Sections 155-161 ERA 1996]
Contractual Redundancy Pay
You may have terms in your employment contract, or your employer’s redundancy policy that provide enhanced redundancy pay, and an agreed redundancy procedure. The law provides a minimum entitlement and so contractual terms are generally more generous.
Your employer must give you a written statement setting out how your statutory redundancy payment has been calculated. An employer who without reasonable excuse fails to comply is guilty of an offence and liable on summary conviction to a fine[ S165 ERA 1996].
Tax on Redundancy Payments
Statutory and contractual redundancy payments are tax free up to £30,000. Any payment that is not compensation for loss of employment is taxable.
You are entitled to payment for your accrued annual leave that you have not taken, but the payment would be taxable because it is not compensation for losing your job.
Claiming Redundancy Payment in the Employment Tribunal
You have 3 months less one day to bring a claim in the employment tribunal if your employer does not pay your contractual redundancy pay, and 6 months less one day if your employer does not pay your statutory redundancy pay [S164 ERA 1996]
If your contractual redundancy pay is more than £25,000 the Employment tribunal will not be able to deal with your case, and you would have to go to the County Court.
A Schedule of Loss is very important for your Employment Tribunal claim. It is a document which tells the Employment Tribunal how much you think you should be paid if you are successful. The Employment Tribunal will usually order you to show how you have calculated each amount you are claiming for your losses.
Last Updated: [06/01/2022]