Redundancy Calculator

Whether your business is restructuring, or underperforming, you may be considering making your employees redundant. If that happens, you must make sure that you pay your redundant employees correctly.

Failure to pay the correct amount could result in a tribunal claim even after the employee has left the business. Both employers and employees can have many questions about redundancy. This article includes a helpful UK redundancy pay calculator to enable all sides to have clear guidance.

 If your business needs specific advice around redundancy or other HR and employment law issues, Croner has a team of award-winning specialists who can help with 24-hour advice. You can contact Croner on 0800 470 2775.

What is redundancy pay?

An employee who is made redundant is entitled to statutory redundancy pay under certain conditions.

Statutory redundancy pay is calculated based on multiple factors. These include the employee's age, length of service, and average weekly pay. If you’re looking for how to calculate redundancy, the quick formula is:

• Half a week’s pay for each full year you were under 22.
• One week’s pay for each full year you were 22 or older, but under 41.
• One and half weeks’ pay for each full year you were 41 or older.

Keep in mind that you need to take into account a maximum of 20 years of service when calculating how much statutory redundancy is owed.

How do I know if my employee qualifies for redundancy pay?

Employees are not automatically entitled to redundancy pay. To be eligible to receive redundancy payments, either statutory or contractual (unless the business has their own rules for contractual payments), an individual must:

• Have an employment contract of employment with your organisation.
• Have at least two years of continuous service
• Have been dismissed by reason of redundancy, laid off, or put on short-time working (although this doesn’t automatically entitle employees to statutory redundancy pay)  - those who opted for early retirement do not qualify.

How soon does redundancy pay need to be resolved?

Every employer should make the redundancy payment once the employee’s employment has ended, or an agreed date soon after.

Is statutory redundancy pay capped?

Maximum statutory redundancy pay is capped at £700 per week with total pay is capped at £21,000.

Are there other types of redundancy pay?

Statutory redundancy pay is the legal minimum an employee can be paid. Depending on your in-house policy, an employee could be entitled to contractual redundancy pay.

Is there a notice period for redundancy?

As an employer, you must be extremely thorough when selecting an employee for redundancy. You must show that you followed a fair selection and consultation process and that you don’t base decisions to dismiss on an individual’s protected characteristic.

Employers must give staff notice and a leaving date once they’ve finished their redundancy consultations.

You must give your staff at least the statutory notice period, this is based on when their employment started.

Statutory notice periods for an employee who has worked 1 month to 2 years' length of service, must be given at least a week's notice to dismiss. From 2 years to 12 years, this extends to a week's notice for every year employed. For 12 or more years, the notice is 12 weeks.

What is statutory notice pay?

As part of the process, you must give a notice period before employment ends. Our statutory redundancy calculator will not give you a figure for notice pay, so it’s up to you to get this right.

How much redundancy pay they receive is dependent on the length of the statutory notice period.

Taxable payments

Any redundancy payments you make to staff under £30,000 are tax-free. However, if you owe redundant staff holiday pay or wages, tax and National Insurance (NI) deductions apply.

Employers need to give redundant staff final payments.

This could include:

• Statutory redundancy pay.
• Holiday pay.
• Unpaid wages.
• Company benefits, for example, bonuses.

You must deduct tax and National Insurance from some payments. The amount depends on what’s included in the employee’s termination payment.

It’ll be up to you to apply any deductions you need to apply to your payments.

Pay in Lieu of Notice (PILON)

This term applied when you terminate your employees contracts with immediate effect, and pay them their notice. This only applies if there is a contractual clause which allows employers to do this.

PILON is simple to calculate. You should pay your employee the basic pay they would’ve received during the notice period. You may have to make extra payments such as pension contributions or private health care insurance.

If you’re uncertain whether this applies to you, contact one of our advisers today.

Get help from Croner with redundancy payments

If eligible, you must pay employees at least the statutory minimum for redundancy pay. Plus, you must do this in line with a fair redundancy process, including adequate notice and consultation.

Getting redundancy wrong can result in an employment tribunal claim, which in turn results in costly pay-outs. Don’t take a chance with this incredibly important process, get support if you need it.

Croner has been supporting businesses for over 80 years on redundancy and other employment law issues. Speak to one of our award-winning expert advisers today on 0800 470 2775.