Redundancy Pay and Payroll

Redundancy is likely to be a growing consideration for many businesses during this difficult Covid-19 period, especially as the Coronavirus Job Retention Scheme (CJRS) draws nearer to closing at the end of October 2021.

If you do have to make people redundant, you must pay redundancy pay to employees who have an employment contract and worked for the business for two full years. However, necessary consultations must be conducted first after which you will need to calculate redundancy pay for those affected. Businesses must pay redundancy, unless the business is insolvent, in which case employees must apply for payment to the Insolvency Service.

The following jobs do not qualify for redundancy pay:

  • armed forces
  • police
  • domestic service, where they are a member of the employer’s immediate family
  • crown servants
  • apprentices who are not employees at the end of their training.

There is a statutory legal minimum that must be paid

You must pay at least the statutory amount to your employees, but how much redundancy pay each employee receives will depend on:

  • their age
  • how long they’ve worked for you (redundancy pay is capped at 20 years of service)
  • their weekly earnings before tax (gross weekly pay).

This is what you must pay from the day of redundancy

  • 5 week’s pay for each full year they were 41 or older, plus
  • 1 week’s pay for each full year they were 22 or older, but under 41, plus
  • half a week’s pay for each full year they were under 22
  • The maximum for a week’s pay is £538. The maximum total amount of statutory redundancy pay is £16,140.

What About Non-Statutory Redundancy Pay?

The above is simply the statutory minimum that must be paid. Many companies have redundancy policies that give more. As a result, you should check your employment contracts as you might need to pay more than the statutory amount.

Many employers often choose to pay higher amounts if they want to encourage voluntary redundancies.

Any other things to consider?

Where an employee’s pay changes from week to week, you will need to calculate the average weekly pay for the previous 12 weeks from the date you make them redundant.

If they did not work for a whole week during that time – due to being on holiday or off sick, for example – replace it with an earlier week.

Your employee’s weekly redundancy pay calculation should also include:

  • regular overtime, if the employee’s contract says they must get paid for it
  • any bonuses or commission.

Importantly, however, you must share in writing with employees how you’ve calculated redundancy payments.

The impact of furlough

With effect from 31 July 2020, any furloughed worker that loses their job is eligible for redundancy pay based on their normal wage rather than the reduced rate paid under the Coronavirus Job Retention Scheme (CJRS).

New legislation ensures that workers get the full rate of redundancy pay after it emerged that a small number of employers had taken advantage of the Coronavirus crisis to pay employees the same rate they received under the CJRS for redundancies.

The new rules on redundancy also apply to statutory notice pay, which covers the period before a worker’s employment ends. This paid notice period typically varies from one to 12 weeks’ depending on an employee’s length of service.

Under the new legislation, notice pay must be based on an employee’s normal wages rather than the lower wages they may have been paid under the CJRS.

The legislation also ensures that basic awards for unfair dismissal cases are based on full pay rather than the reduced wages under the furlough scheme as well.

Contact us for help and advice

To find out how we can help with calculating redundancy pay and any liabilities that may arise from it, and of course all things payroll, contact us or call us on 0121 422 0550.