Being made redundant can be an extremely stressful time. Not only do you have the worry of finding a new job, but you might also be stressed about the loss of a steady income. Luckily, most employees are entitled to a final payment called redundancy pay, which can help tide you over until your next paycheck.
Redundancy pay is a legal requirement for all qualifying employees. It is the legal minimum amount that you must be paid if your employer wants to end your contract for a valid reason, such as cuts within the company or an unnecessary job role through the introduction of new technology.
It's important that you are paid the correct amount if you are made redundant, including the right amount of holiday pay or pay in lieu of notice. You should also check that you have paid the correct amount of tax as you may have under or overpaid what you are due.
We'll walk you through the ins and outs of what you can expect from the process in terms of how much statutory redundancy pay you are due and what you will be expected to pay tax on.
Statutory redundancy pay is based on your length of service at a company, your weekly gross pay before taxes and your age. You must have worked at a company for a minimum of two years to qualify for statutory redundancy pay, although you may be eligible for contractual redundancy pay if it is specified in the contract.
All employers are legally obliged to pay employees statutory redundancy pay as the minimum payment level. However, employers may have to pay you more if there is additional contractual redundancy pay included in your contract. You should assume that you will be paid the minimum level if contractual redundancy isn't included in your contracts. You can use the government's redundancy pay calculator to find out how much you are entitled to.
Continue reading to find out how and when you will be paid your redundancy money, along with the maximum statutory redundancy pay that you are entitled to.
How much do you get for redundancy pay?
17 to 21-year-olds are entitled to a half week's pay for each full year that you have worked. 22 to 40-year-olds must be given one week's full pay for each full year that they have worked at the company since the age of 22. You are also entitled to half a week's pay for every year that you worked before that age.
Employees aged 41 years and over are entitled to one and a half week's pay for every year that they have worked since they turned 41, as well as a week's full pay for every year that they have worked between 22 and 40 and half a week's age for every year before that.
Are you entitled to redundancy pay?
You must have continuously worked at the company for a minimum of two years in order to qualify for statutory redundancy pay. You must also have lost your job for a genuine reason, such as company cuts or the loss of a job role.
Both full-time and part-time employees are entitled to redundancy pay if they meet the previously mentioned requirements. You should also be paid redundancy pay if you are on a fixed-term contract and your employer doesn't renew it because the job no longer exists. This includes fixed-term contracts that continuously lasted for two or more years, as well as shorter contracts that add up to two or more years when combined.
If you have worked at a company for less than two years, worked as a police officer, or served in the armed forces, you are not entitled to redundancy pay. You are also not entitled to redundancy pay if you worked as domestic staff for your immediate family or were an employee for a foreign government.
However, even if you are not entitled to statutory redundancy pay, you may still be entitled to contractual redundancy pay. This is a type of redundancy pay that some employers offer. It will be listed in the contract, including the stipulations of how much you are entitled to.
How much notice should you get for redundancy?
Employers should notify you of your redundancy a minimum of one week's notice for every year that you have worked at the company. For example, you should be given a minimum of three weeks' notice if you have been at the company for three continuous years. Some contracts specify an extended redundancy notice period in the contract, which may exceed the statutory minimum.
You may be expected to work through your notice period, but other companies might allow you to leave earlier or immediately. In this instance, you should be paid in lieu of notice (PILON). This is a form of compensation that you should receive if your employer decides to end your contract early before you have worked your full notice period.
Will you get paid your leftover holiday pay with your redundancy payment?
Your employer must give you any leftover holiday pay that you haven't yet taken or allow you to take the holiday before you leave. It's a good idea for you to check how much holiday you have left so that you can make arrangements to use it up in advance if needs be.
When will you get paid redundancy pay?
Employers are expected to pay their employees redundancy pay on the date that they leave the company, or on an agreed date in the following days. This payment will be made in the same manner that previous wages have been made. Your employer will send the payment to your bank account or through another payment method.
You should also be given a written statement that explains how much they have been given and how it was calculated. This could include a breakdown of overtime, holiday pay or bonuses.
Do you have to pay tax and National Insurance on redundancy pay?
You are entitled to receive up to a maximum statutory redundancy pay of £30,000 tax-free. This applies to both the legal minimum of statutory redundancy pay, as well as a higher amount should the employer pay your contractual redundancy pay. There is no legal requirement to pay National Insurance on either payment method.
Any additional equipment that you are given, including computers, headphones and company cars, are each given a cash value and added to the redundancy pay for tax evaluation. In some cases, this may take the overall redundancy pay over £30,000.
Your employer usually deducts the tax before they pay you the final amount, although they may have taxed the wrong amount. In this instance, you may need to claim back tax or pay the excess that you owe.
Holiday pay and pay in lieu of notice, in addition to any other amounts that you are paid (aside from compensation pay), are all taxed as standard pay. This includes any unpaid wages, bonuses and overtime that you are due. These will be calculated as part of the average wage for the previous 12 weeks of work.
You can work out your expected redundancy package beforehand to try and work out how much tax you will have to pay so that you aren't caught off guard with the tax that you are due to pay.
Statutory redundancy pay is a legal entitlement to any employee who has worked in continuous employment at a company for two or more years. The amount will depend on your age, the length of your employment and your average weekly pay. Some companies offer contractual redundancy payments which may be a higher amount than the statutory legal requirement.
You can be given up to £30,000 worth of tax-free redundancy pay, which applies to both statutory and contractual redundancy pay. This includes the cash value of any equipment that you are given when they leave, including headphones, laptops and phones.
You are also entitled to take or be paid for any remaining holiday, although this is taxed as standard pay. You may be paid in lieu of notice if your employer wants you to leave before your contractual end period is completed.
What should you do if your employer doesn't pay your redundancy pay?
You should be paid your redundancy pay in the same way that you have previously been paid your wages. However, there are several steps that you can use to claim statutory redundancy pay if your employer fails to make the payment.
You can begin by writing a letter to your employer that states how much money you are entitled to, as well as relevant evidence that can back up your claim. This could include a calculation of the average of one week's pay and your employment dates, including your start and end dates.
If your employer still fails to pay the contractual redundancy pay, you should contact the Advisory, Conciliation and Arbitration Service. Acas, as it is otherwise known, is a Crown non-departmental public body of the UK's government. It can offer independent support to help resolve employment disputes, including redundancy pay.
The first step is to see if your employer agrees to participate in a process called early conciliation. This is a preventive method to try and resolve the issue without going to a tribunal. You can fill out a form on the Acas website or contact the team via a phone call.
If the issue is still not resolved, the matter will be taken to an employment tribunal. This can be an expensive and complicated process, which is why most employers will usually try to avoid it.
You have a deadline of six months to claim any redundancy pay that you are owed. This period starts from the day after your last day of employment at the company. There is also a period of three months to dispute an unfair dismissal.
What is a redundancy consultation process?
You are entitled to a consultation with your employer if you are made redundant. This can involve discussions about the alternatives to redundancy, as well as the reasons that you are being made redundant.
There is no set way that employers should run a consultation if they are letting 19 or fewer employees go. However, if there are 20 or more redundancies being made at once, a consultation should take place between the employer, employee and their representative. The rep may be from a trade union or an elected individual if the employee does not belong to a union.
The consultation can include alternatives to the redundancy, along with how to potentially reduce numbers and how to minimise disruption to the employees involved.
Consultations should take place at least 30 days before the dismissal period is due to begin if 20 to 99 employees are being made redundant. The consultation must take place at least 45 days before dismissals if more than 100 employees are being made redundant.