Calculating redundancy pay

Intro

Redundancy pay is a critical aspect of employment law, providing financial support to employees who have lost their jobs due to redundancy. In this article, we will delve into the calculation of redundancy pay, exploring the key themes and concepts that surround this complex topic.

Statutory Redundancy Pay

Statutory redundancy pay is the minimum amount of redundancy pay an employer must pay to employees who have worked for them for 2 years or more. This payment is calculated based on an employee's age, length of service, and normal weekly pay.

Calculating Redundancy Pay

The calculation of redundancy pay involves the following steps:

• Age: The employee's age at the time of redundancy is used to determine the multiplier applied to their normal weekly pay.
• Length of Service: The employee's length of service is used to determine the number of weeks' pay they are entitled to.
• Normal Weekly Pay: The employee's normal weekly pay is used as the basis for the calculation.

The calculation formula is as follows:

• Half a week's pay for each full year of service under the age of 22
• One week's pay for each full year of service between the ages of 22 and 41
• One and a half week's pay for each full year of service over the age of 41

Enhanced Redundancy Pay

In addition to statutory redundancy pay, employment contracts may require employers to pay enhanced redundancy pay. This additional payment is typically negotiated as part of the employment contract and can vary depending on the employer and the employee's role.

Payment in Lieu of Notice (PILON)

Payment in lieu of notice (PILON) occurs when an employee stops work immediately, but the employer still pays them for the notice period. This payment affects the calculation of redundancy pay, as it is included in the overall payment.

Contractual Notice

Contractual notice refers to a longer notice period than the statutory minimum, which may be specified in the employment contract. This can affect the calculation of redundancy pay, as the notice period is taken into account when determining the overall payment.

Key Takeaways

• Employers must pay at least the statutory minimum amount of redundancy pay to employees who have worked for them for 2 years or more.
• Enhanced redundancy pay may be required by employment contracts.
• The calculation of redundancy pay is based on an employee's age, length of service, and normal weekly pay.
• Payment in lieu of notice (PILON) affects the calculation of redundancy pay.
• Contractual notice may also affect the calculation of redundancy pay.
• Employers must pay redundancy pay no later than an employee's final pay day, unless agreed otherwise in writing.
• If an employer cannot afford to pay redundancy pay, they may be able to seek financial help from the Redundancy Payments Service (RPS).

By understanding the key themes and concepts surrounding redundancy pay, employers and employees can better navigate the complex process of calculating and paying redundancy pay.