Redundancy: the options
Rights of redundant employees
Redundant employees have a number of rights and may be entitled to receive a statutory redundancy payment (SRP).
The right to receive an SRP
To receive an SRP, an individual must:
- be an employee working under a contract of employment
- have at least two years' continuous service - see continuous employment and employee rights
- have been dismissed, laid off or put on short-term working (and have a qualifying period of lay off)
A redundant employee also has the right to receive a written statement setting out the amount of any redundancy payment and how you worked it out.
You must make the payment when or soon after you dismiss the employee.
How is an SRP calculated?
An SRP is based on an employee's age and length of employment and is counted back from the date of dismissal. Employees receive:
- 1.5 weeks' pay for each year of employment after their 41st birthday
- one week's pay for each year of employment after their 22nd birthday
- half a week's pay for each year of employment up to their 22nd birthday
Their length of service is capped at 20 years. Weekly pay is subject to the statutory limit which is £560 (since 6 April 2020). The maximum SRP payable is £16,800 (since 6 April 2020). These figures are normally reviewed each year.
SRP and the Coronavirus Job Retention Scheme
Furlough pay should not be used in the calculation of SRP. This should be based on an employee’s average hours and full normal pay. You will already have worked this figure out when claiming from HM Revenue & Customs (HMRC's) Coronavirus Job Retention Scheme.
For example, if an employee’s weekly pay is usually £300 but they received 80% pay while on furlough, the redundancy pay calculation must use the full normal pay of £300 a week.
If pay varies from week to week, the weekly pay must be worked out by using the 12 weeks leading up to the day the employee received the redundancy notice. Add up the total amount of pay during the 12 weeks and divide it by 12 to get the weekly average.
Taxation of SRPs
SRP is not taxable, as it's not more than £30,000. Any redundancy payment you make in addition to SRP is subject to tax and National Insurance (NI).
Other termination payments made to the employee at the same time - like payment in lieu of holiday - must have tax and NI deducted.
Failure to make an SRP
If an employee disagrees with the amount, or you fail to pay SRP, the employee has six months from the date their employment ended to make a claim for payment to an Industrial Tribunal.
All other complaints in relation to payments received on termination of employment due to redundancy for eg notice pay or holiday pay must be made to an Industrial Tribunal within three months from the date the employment ended.
If they fail to make the claim for redundancy payment in time, a tribunal still has the power for a further six months to decide whether or not the employee should receive an SRP.
Other redundancy rights
Employees under a notice of redundancy also have the right to:
- Be offered suitable alternative employment.
- Have a trial period in alternative employment without losing their right to an SRP.
- A reasonable amount of time off to look for another job or to arrange training. This applies where the employee has been employed for at least two years. The employer does not have to pay more than two-fifths of a week's pay, no matter how much time off they give the employee.
- Not be unfairly selected for redundancy - see unfair dismissal.
Offers of alternative work
Even if you have selected an employee for redundancy, you could still avoid dismissals by offering them alternative work.
For an offer to be valid:
- the job must actually be offered to the employee and the employee shouldn't have to apply
- the offer should be unconditional and in writing
- the offer must be made before the employee's current contract ends
- the offer should show how the new job differs from the old
- the new job must either start straight after the end of the old job or within four weeks
Employees who accept an offer of alternative work are allowed a four-week trial period to see if the work is suitable. The four-week trial period can be extended by agreement for training purposes only.
An agreement for an extended trial period must be in writing and be made before the employee starts work under the new contract. It must state the date on which the period of retraining will end and specify the terms and conditions of employment that will apply after the end of the retraining period.
They may still claim a statutory redundancy payment (SRP) if you both agree that the work is not suitable. If you think the job is suitable but the employee unreasonably refuses to take it, they may lose any entitlement to an SRP.
The Labour Relations Agency (LRA) redundancy webinar provides useful information on the topic of redundancy and how to ensure the redundancy process is managed fairly and in line with employment legislation.
LRA Workplace Information Service03300 555 300
Redundancy Payments Service Helpline0800 585 811