You are entitled to redundancy pay if you are an employee with at least two years' service.
Statutory redundancy pay
The amount you will receive depends on your age, your pay and how long you have worked for your employer.
'Statutory' redundancy pay is the minimum to which you are entitled by law. Check your contract to see if your employer offers more generous terms, on top of the statutory amount. This is 'contractual' or 'enhanced' redundancy pay.
The total amount of statutory redundancy pay is based on:
- Your weekly pay before tax (gross pay).
- The number of years you have worked continuously for your employer.
- Your age.
Weekly pay should include regular overtime, if your contract says you must get paid for it, and any bonuses or commission.
If you are aged 17 to 21, your employer must give you half a week's pay for each full year you have worked.
If you are aged 22 to 40, your employer must give you a week's pay for each full year you worked from age 22, plus half a week's pay for each full year you worked before that.
If you are aged 41 or over, your employer must give you one and a half weeks' pay for each full year you worked from age 41, plus a week's pay for each full year you worked when you were between 22 and 40, plus half a week's pay for each year you worked when you were between 17 and 21.
Your employer must give you written details of how your redundancy pay has been worked out.
There is a statutory redundancy pay calculator on the UK government website.
The weekly pay element of any calculation may not be as much as your actual weekly pay. This is because the maximum amount of a week's pay is subject to a cap which is updated every April. It was raised to £544 in April, 2021.
Your length of service for statutory redundancy pay calculations is also capped, at 20 years.
There is also a cap on the total amount of statutory redundancy pay you can claim. This was increased to £16,320 in April, 2021.
If you work irregular hours, your 'weekly pay' should be the average weekly pay for the 12 weeks before you were made redundant. If you did not work for a whole week in that period, perhaps because you were off sick, this should be replaced with an earlier week.
If you worked full-time in the past, but changed to part-time work before being given notice of redundancy, your statutory redundancy pay is calculated at your part-time rate. Law at Work advises that if you agree to reduced hours or lower pay to avoid redundancy, you should negotiate an agreement with your employer to ensure that any redundancy calculation in future is based on your full-time pay and hours (Law at Work 2020, p 440).
Statutory redundancy pay is, in effect, untaxed. Contractual redundancy pay (see next section) is not taxed up to a limit of £30,000, which includes the statutory payment.
You will pay tax on your redundancy payment in the tax year that you receive it, even if you were made redundant in an earlier tax year. The Low Incomes Tax Reform Group has a useful list of Frequently Asked Questions around redundancy pay and tax.
Law at Work cautions that 'emoluments', such as wages or notice pay, contained in any settlement will be taxed as earnings (Law at Work 2020, p 443).
Contractual redundancy pay
If you are entitled to contractual redundancy pay, this will usually be expressly stated in your contract. If your contract does not address this directly, you may have an argument that your right to contractual redundancy pay is implied, deriving from custom and practice (Law at Work 2020, p 440). This can be difficult to establish, and you should seek early advice from your NUJ rep or officer.
Some employers operate a discretionary policy on offering enhanced payments. In these cases, the employer's decision must not be 'irrational or perverse' and must avoid discrimination or victimisation (Law at Work 2020, p 442).
There are strict time limits for bringing claims for statutory or contractual redundancy pay. Again, seek advice as soon as you can.
Redundancy payments when your employer becomes insolvent
Your employer is insolvent if they cannot meet their debts. In this situation, you can apply to the UK government for a redundancy payment as well as holiday pay, outstanding payments such as unpaid wages, overtime and commission, and money you would have earned while working your notice period. The last of these is called 'statutory notice pay'. You must have at least two years' service.
The programme is run by The Insolvency Service, which has issued guidance: 'What to do when you've been made redundant'.
The redundancy payments are capped at the same weekly levels used for statutory redundancy. If you wish to claim more than this amount, you must claim it as a debt in your employer's insolvency. You are also limited in the number of weeks' pay you can claim. The maximum is:
- Statutory notice pay, in full.
- Statutory redundancy pay, also in full.
- Arrears of pay, up to eight weeks.
- Holiday pay, up to six weeks.
If you find yourself in this situation, seek advice from your NUJ rep or officer as soon as possible.