Calculating redundancy pay
If you’re making redundancies in your organisation you should always check the redundancy costs before starting a consultation process, to ensure your business case stacks up.
There are different payments people may be entitled to:
Statutory Redundancy Pay
Only employees with more than two years service are entitled to a statutory redundancy payment. This payment is based on a “statutory week”. This might not be the actual pay the employee gets but a statutory amount set by the government each year. As of July 2020 it’s currently capped at £538 (you can always check here to find out current rates). That means if your employee earns say £475 per week, you would calculate using £475. However, if they earn £755 per week their weekly rate would be capped at £538.
Once you know the current weekly rate, you then need to multiply the statutory (or if they earn less than the government set rate, you would use that) week by the following:
Half a week's pay for each year of employment up to the age of 22;
One week's pay for each year of employment between the ages of 22 and 40;
One and a half week's pay for each year of employment over the age of 41;
(Note: a maximum of 20 years' employment can be taken into account).
Okay, so it’s all a bit confusing! The most accurate way to calculate a redundancy payment is using the tool on the government website.
Company Redundancy Pay
You have to pay Statutory Redundancy but some companies offer a discretionary enhanced redundancy payment. This is pretty rare in the small businesses, so you should always double-check your handbook, contracts and any policies on redundancy payments to see what you’ve offered. If it is written down that you offer it, you have to honour it.
What else do you have to pay?
Contractual Notice
All employees, regardless of their length of service are entitled to receive their notice pay. Their notice of termination should be set out in their contract. The statutory minimum notice is a week per year of service up to a maximum of 12 weeks. However, your contracts may offer longer notice periods (at least in years 1-3 of employment). Check your contracts to see what you’ve committed to.
There is the option that you get employees to work their notice. Or, if they have the right clause in their contracts, you can put them on paid leave/garden leave or pay them in lieu (so paying them all up front without requiring them to come to work).
Holiday pay
You also need to pay the employee any untaken accrued holiday up to the end of their notice period.
Redundancies are difficult for everyone involved – both those being made redundant and those having to make the redundancy. It’s really important to be empathetic and equally to keep things fair and legal.
If you need help with calculating redundancy pay, or advice on the whole redundancy process, we can help. Take a look at our fixed price redundancies, restructures and change management support here or get in touch on 0333 0433239 or email: info@pmp-hr.co.uk
You might also be interested in: www.peoplemanagementpartners.co.uk/blog/keeping-it-fair
We keep HR human
#redundancy #redundancypay #redundancycalculation #keepHRhuman