An employer's guide to statutory redundancy pay

The statutory redundancy pay scheme was originally introduced to soften the blow when employees are made redundant by providing them with a severance payment, recognising their past service to the employer. Many employers provide additional redundancy pay, either due to contractual arrangements or on a discretionary basis. This guide does not deal with such payments and only focuses on the statutory redundancy pay entitlement.

Entitlement to redundancy pay

In order to qualify for redundancy pay, an individual must be an employee, not in a group of non-qualifying employees, and must have 2 years of continuous service on the relevant date (the group of non-qualifying employees covers crown servants, government employees of any overseas territory, household servants and domestic staff who are closely related to their employer and share fishermen or women). Employee shareholders have no entitlement to statutory redundancy pay.

The employee must not have been excluded from the right to a statutory redundancy payment. Details of when an employee may be excluded from the right to a statutory redundancy payment are dealt with further on in this guide.

The relevant date for calculating continuous service

The relevant date for calculating continuous service for redundancy payment purposes is as follows:

• If the employee was dismissed with notice, the date when the notice expired;
• If the employee was summarily dismissed or resigned without notice, the date of the dismissal or resignation; or
• If the employee’s contract came to an end on the expiry of a fixed-term contract which was not renewed, on the date of expiry of the fixed term contract.

If, however, the employer dismisses the employee without notice or with short notice, i.e., less than the statutory minimum and not by way of summary dismissal, then the relevant date is extended and becomes the date that the employment would have terminated had the employee been given the statutory notice on the day that they were given no notice or short notice to terminate the contract.

This relevant date may differ in some circumstances. The circumstances are as follows:

• Where an employee, in response to being given notice of dismissal, serves written notice bringing forward the termination date. It is the revised termination date that is the relevant date; or
• Where an employee is offered and commences alternative employment but the employee or employer then terminates the trial period. The relevant date is the date of termination of the original contact.  (For this to apply, whilst the employee can terminate the contract for any reason, the employer must be terminating the contract for a reason connected with or relating to the difference between the original role and the alternative employment).

In looking at the two year's continuous service, where an employee has been dismissed but re-employed within four weeks of the dismissal, the interval between the two periods of employment will be included in considering whether the employee has 2 year's service. However, where an employee has previously received a statutory redundancy payment, this will break continuity but for statutory redundancy payment purposes only. If, however, the employee repays the statutory redundancy payment in full, this will have the effect of restoring continuity. There are also specific provisions on continuity for Local Government employees, National Health Service employees and employees employed overseas. If any of these three apply to you, please contact your HR Rely advisor.

How is statutory redundancy pay calculated?

Statutory redundancy pay is calculated on the basis of an employee’s age, length of service and salary.  Although this differentiates between employees on the basis of their age, the Government believes that this is justified.

Redundancy pay is calculated on the following basis:

• One and a half week’s pay for each complete year of service after the age of 41;
• One week’s pay for each complete year of service between the ages 22 and 40; or
• Half a week’s pay for each complete year of service under the age of 22.

No more than 20 years can be taken into account when calculating the statutory redundancy payment.

Conditions

Payment is calculated on an employee’s gross weekly pay at the relevant date but it is subject to a statutory maximum which will apply if the employee’s gross weekly pay exceeds the statutory maximum Pay Data. A guide to calculating a week’s pay can be found at Calculating a weeks pay.

Click the link to access the Business Link redundancy pay calculator tool.

An employee is entitled to a written statement setting out how the redundancy payment has been calculated; failure to do so is a criminal offence.

When redundancy payments may not be payable

An employee will be excluded from the right to receive a redundancy payment in the following circumstances where they:

• have unreasonably refused an offer of alternative employment;
• have failed to work a notice period; or
• are guilty of gross misconduct.

Unreasonable refusal of an offer of alternative employment

Where an employee has been offered suitable alternative employment, whether with their employer or an associated employer, there will be no entitlement to a statutory redundancy payment if the employee unreasonably refuses the offer.

Notice period not worked

Where an employee is required to work their notice (as opposed to being paid in lieu), it is not unusual for an employee, once notice of redundancy dismissal has been served, to find another role and wish to leave prior to the expiry of the notice period. The employee would, therefore, have to give written notice to the employer during the statutory minimum notice period that the employer is required to give the employee.   In many cases, the employer will agree, or do nothing, in relation to the employee leaving in these circumstances. In which case, the employee’s employment will terminate on the date set out in their notice and they will remain entitled to statutory redundancy pay. If an employee jumps the gun and resigns prior to being served with notice to terminate, the employee will not be entitled to statutory redundancy pay.

However, an employer may wish an employee to stay with the organisation and work the notice that it has given the employee. In which case, the employer can provide the employee with written notice which states the following:

• that the employee is required to withdraw their notice and remain in employment until the original termination date as stated in the employer’s notice to terminate; and
• that unless the employee withdraws their notice and remains in employment, the employer will contest any liability to pay statutory redundancy pay.

In the event that such notice is served by the employer on the employee, the employee may apply to the Tribunal for an “appropriate payment”. This is such payment as the Tribunal considers just and equitable for the employee to receive. 

Misconduct

If an employee has either been given notice to terminate their contract or the employee has provided the employer with notice of intention to claim redundancy pay, the employee will not be entitled to a redundancy payment if they are guilty of gross misconduct entitling the employer to dismiss:

• with notice;
• with short notice; or
• with notice together with a statement that the employer would, by reason of the employee’s conduct, be entitled to terminate without notice.

(There are exceptions to this. One relates to the employee being dismissed for taking part in a strike.  If this is an issue for you, contact your HR Rely advisor. The other is that if the dismissal for gross misconduct takes place during the employee’s statutory minimum notice period or after the service of notice by an employee to claim redundancy pay, then the Tribunal may make an “appropriate payment”).

There are two other circumstances where redundancy payments may not be payable, they are where the employee has failed to comply with a notice of extension after a strike or has contracted out of the right to receive a redundancy payment. If either of these may apply to your organisation, please contact your HR Rely advisor.

If you are considering withholding a redundancy payment in any of the above circumstances, you should contact your HR advisor to ensure that the criteria applies to your particular circumstance.

Redundancy pay claims

An employee may bring a claim before the Employment Tribunal for non-payment of statutory redundancy pay. In order to bring a claim, then within 6 months, commencing on the relevant date, one of the following must have taken place:

• the employee has lodged a claim of unfair dismissal to an Employment Tribunal;
• the question about the employee’s right to a redundancy payment is referred to a Tribunal;
• the employee has made a written claim for payment to the employer; or
• the payment is agreed and paid.

It seems odd why an employee would be claiming redundancy pay which has been agreed and paid, but this could cover a situation where the employee subsequently considers it was calculated wrongly and there is a shortfall.

It is important to note that where the employee’s contract comes to an end during the trial period or because the employee is dismissed without or with insufficient notice, for the purpose of calculating time periods, the relevant date is the date that the employment actually came to an end.

Once the right to claim is established under one of the above, there is no subsequent time limit and the employee’s right to present a claim to an Employment Tribunal is indefinite. If the above events have not taken place, then the Tribunal still has jurisdiction to extend a time limit by a further six months subject to various factors.