Redundancy Pay

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Losing your job is scary, but you do have rights and there are strict redundancy procedures that employers must follow.

But what exactly is redundancy pay and what are your legal rights if you are made redundant?

In this article we will answer all these questions and more.

Let’s begin.

What is redundancy?

Redundancy is when a person or group of people are dismissed from their job because a company needs to reduce their workforce.

It is often as a result of a cost-cutting programme, a restructuring of the business or the business going bust. It is basically when the job you were doing no longer exists.

What is redundancy pay?

When you become redundant your employer may make a payment to you, called a redundancy payment. This is to compensate you for losing your job. 

Can I be made redundant for going on strike?

You have the right to take part in industrial action, however, your employer isn’t legally required to pay you during this period. They can also reduce your length of service by the number of days you were absent to work whilst on strike. This may be important when working out your pension and things like statutory redundancy pay.

You cannot be dismissed for industrial action if:

1. The industrial action is called as a result of a legal strike ballot.
2. The industrial action is called as a result of a trade dispute between workers and their employer (e.g., a dispute about working conditions).
3. The employer has been given a least seven days’ notice.

If you are dismissed within 12 weeks of a strike, you can take legal action via an employment tribunal. 

What are the employment laws on redundancy?

The rules on redundancy are strictly set out in UK employment law. An employer’s legal obligations when making employees redundant include:

1. Fair selection process for those made redundant.
2. Complying with the statutory rights of employees.
3. Following all employment policies and employee rights set out in their contract.
4. A consultation process must be followed with the employees.
5. A notice period must be given.
6. Redundancy pay must be offered if the employee is eligible. The amount of which will depend on the employee’s length of service.
7. An offer of suitable alternative employment elsewhere in the company must be made if possible.

Before embarking on a redundancy process, a company has to ensure that all other options have been explored and exhausted, including reducing staff:

• Benefits
• Hours
• Pay

If an employee thinks they have been treated unfairly or that their employer has not followed the law, they can make a claim for unfair dismissal at a tribunal.

How are employees chosen for redundancy?

Once an employer has identified where they believe job losses need to be made, they must fairly select who will be made redundant. The following are reasons that can be used to make an employee redundant:

• The employee’s skills
• The employee’s aptitude
• The employee’s qualifications
• The employee’s disciplinary record
• The employee’s attendance record

Employees cannot be selected for redundancy as a result of their gender, age, disability or due to a pregnancy.

Isn’t redundancy decided on last in, first out criteria?

Employers can adopt “last in, first out” criteria but they need to justify this and ensure that it doesn’t affect one group of people more than another. 

What is the consultation period?

The purpose of the redundancy consultation is for the employer to talk to those staff members at risk of redundancy and explain what exactly is going on. Employers will need to offer staff a chance to ask questions or object in some way, either to the proposed decision or the process itself.

The consultation should not be a process where employees are simply told that they are being made redundant.

There are two types of consultation: 

• Individual
• Collective

The number of employees at a business will decide whether individual or collective consultations will take place.

Fewer than 20 employees

Employer needs to consult with employees individually within a reasonable time.

20-99 employees

Employer must carry out a collective consultation, speaking to union representatives or elected employee representative.

Consultation must be completed at least 30 days before the first dismissal.

100+ employees

Employer must carry out a collective consultation 45 days before the first dismissal.

What notice period am I entitled to?

By law, your employer has to give you a set amount of time from the point of telling you about your redundancy to your last working day at the company.

This is called your redundancy notice period and the amount you get depends on your length of service:

• One month to 2 years: One week.
• From two to 12 years: one week’s notice for each year’s service.
• 12 years or more: Notice periods are capped at 12 weeks’ notice.

These are statutory minimum notice periods, and you may get more if your contract says so, but you can’t get less.

What redundancy pay are employees entitled to?

Employees are entitled to statutory redundancy pay if they have been in the same job for at least two years. How much they get will depend on:

• The employee’s age.
• The employee’s length of service (only complete years count and it is capped at 20 years).
• The employee’s current salary.

If you were made redundant on or after April 6, 2022:

• Weekly pay is capped at £571
• Maximum statutory redundancy pay is £17,130

If you were made redundant before April 6, 2022:

• Weekly pay is capped at £544
• Maximum statutory redundancy pay is £16,320

Note: employment contracts may state that an employee is entitled to more than the statutory figure, but never less.

Are redundancy payments tax-free?

The first £30,000 of redundancy pay is tax-free. Any amount above this will be subject to income tax. You do not pay national insurance on any of your redundancy pay.

Holiday pay, pay in lieu of notice and any other amounts that are paid for the work you do, rather than as compensation for the job loss, are taxed as pay.

Do I need to tell HMRC if I’m made redundant?

Despite the first £30,000 of redundancy pay being tax-free, you still need to tell HMRC about it.

You need to provide details on your tax return of all severance pay so that HMRC can check everything is in order. 

When should I receive my redundancy pay out?

Employees should receive their redundancy payments on or before their final payday. However, an alternative date can be agreed between both parties. This should be in writing.

In conclusion

Redundancy pay can be a real lifeline for those who lose their job. 

We hope you have enjoyed this guide. For more useful workplace information, check out the rest of our website.