Calculating redundancy pay
Published 26 May 2020
Fear of the financial impact of redundancy is usually a main concern with the news of any potential job losses.
The coronavirus pandemic has led to a wave of redundancies and left tens of thousands of employees facing an uncertain future.
The impact of Covid-19 has been widespread, devastating and catastrophic for employers in all sectors. The repercussions are likely to be long lasting.
As a result redundancies will unfortunately become necessary and commonplace with both large businesses and smaller organisations badly affected.
British Airways is reportedly set to cut up to 12,000 jobs from its 42,000-strong workforce due to a collapse in business because of the coronavirus pandemic (1). It is feared that it will take many years for the airline industry to recover.
It has also been reported that a third of small firms are considering redundancies while thousands fear they will never reopen as the Covid-19 crisis devastates the UK economy (2)
It will mean employees across the country, many maybe for the first time, will be desperate to know how redundancy pay is calculated and what they are entitled to in such circumstances.
You can be made redundant in a number of circumstances, which include if (3) :
- The business is failing
- The business, or part of it, has stopped operating (often called becoming insolvent or going bust)
- Your skills are no longer needed
- Your work is being done by other people, after a reorganisation
- The business, or the work you are doing, moves to another location
- The business is taken over by another company
- Your employer was the sole owner of the business and they die
You are entitled to a statutory redundancy payment if you have worked continuously for your employer for two years or more and are being dismissed for redundancy.
The payment is calculated by taking account of your age and length of service (4). It is capped at 20 years – working backwards from the date you are made redundant.
Your employer must pay:
- 1.5 weeks’ pay for each year of work after your 41st birthday
- 1 week pay for each year of work after your 22nd birthday
- Half a week for each year of work before your 22nd birthday
The limit for weekly pay is £538. The maximum total amount of statutory redundancy pay is £16,140.
If your employer has not been paying you the National Minimum Wage, your redundancy payment must be paid at the level of the National Minimum Wage for the weekly hours you worked. It is against the law not to pay you the National Minimum Wage.
The government provide a redundancy pay calculator, which can calculate your statutory redundancy payment (5). By inputting the date you are made redundant, your age, length of service and gross weekly income it will calculate the payment that you are legally entitled to.
Some employers may operate a more generous scheme and make an enhanced redundancy payment.
If you are on a fixed-term contract you will be entitled to statutory redundancy pay if your employer does not renew your fixed-term contract because the job no longer exists and you had either: a fixed-term contract for two years or more or shorter contracts that followed on from each other and added up to two years or more
You will not be entitled to statutory redundancy pay if you:
- Have worked in your job less than two years
- Are self-employed
- Are a police officer or in the armed forces
- Are a Crown servant, parliamentary staff or holder of public office (for example, a Justice of the Peace)
- Are a share fisherperson
- Are domestic staff working for your immediate family
- Are an employee of a foreign government
There are situations in which you can be entitled to statutory redundancy pay, but can lose the right to it.
- If you reject a suitable offer of an alternative job without good reason.
- Choose to leave before the job is due to end - for example, because you have found another job.
- Are dismissed for gross misconduct before your job finishes
(2) Some businesses fear they will never reopen as the Covid-19 crisis devastates the UK [Internet] www.cityam.com [Cited 26.5.20] https://www.cityam.com/coronavirus-a-third-of-small-firms-fear-collapse-amid-redundancy-plans/
(3) You can be made redundant if [Internet] www.citizensadvice.org.uk [Cited 26.5.20] https://www.citizensadvice.org.uk/work/leaving-a-job/redundancy/check-if-your-redundancy-is-fair/make-sure-your-redundancy-is-genuine/
(4) The payment is calculated by taking account of your age and length of service [Internet] www.acas.org.uk [Cited 26.5.20] https://www.acas.org.uk/manage-staff-redundancies/work-out-redundancy-pay
(5) The government provide a redundancy pay calculator [Internet] www.gov.uk [Cited 26.5.20] https://www.gov.uk/calculate-employee-redundancy-pay
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