Redundancy Pay: Everything You Need to Know

Clare Parkinson

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19 Jul 2018

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Many employers have had to face the dreaded task of making some or all of their staff redundant. Losing major contracts, budget cuts, sales losses—it can happen in many ways, to once-strong companies. With redundancy comes thousands of pounds spent on redundancy pay. Here's what you need to know about paying your staff when you lay them off.

Statutory Redundancy Pay

Your employees qualify for statutory redundancy pay (SRP) once they've given you two years of service. If the worst happens, and you have to start letting staff go, they will be eligible for the following redundancy payments:

  • Half a week's pay for each full year they worked for you under the age of 22.
  • One week's pay for each full year they worked for you between 22 and 40 years old.
  • One and a half week's pay for each full year they worked for you while 41 or older.

If you want to work out how much you owe (or would owe) your employees, you can use our free redundancy pay calculator. Just input your employee's:

  • Date of birth.
  • The date they began their current job with you.
  • The date their employment ended or will end.
  • Their average weekly pay.

In addition, De Montfort University's statutory redundancy pay table is a simple diagram to work out entitlement, too. Note: There's a cap of 20 years' maximum service for statutory redundancy payments.

How Much is Statutory Redundancy Pay?

As of April 6, 2018, the cap for weekly SRP is £508. The maximum that you can pay an employee in statutory redundancy payments is £15,240. If you made an employee redundant before April 6, 2018, this amount is lower. Our SRP calculator considers this information, so you don't need to worry about potentially wrong figures.

Is Redundancy Pay Taxable?

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

Who isn't eligible for redundancy pay?

When a company needs to make cuts and let some staff go, there are always some employees who are able to keep their job. And for some staff, you'll find an alternative role for them—perhaps in a different team, or one of the other offices. The staff you keep on are not eligible for redundancy pay. This includes those who stay in their role and those who make a switch, such as to a different department. If you offer an employee a fair alternative role, and they turn it down, you don't owe them redundancy pay. People in these roles aren't eligible for SRP, either:

  • Crown servants.
  • Members of the armed forces or police service.
  • Apprentices who aren't going to become your employees at the end of their training.
  • Share fishermen.
  • Someone who is a domestic servant and a member of their employer's immediate family.

Statutory Redundancy Pay for Short-term or Temporary Lay-offs

Your staff can claim SRP if you've laid them off (without pay or less than half one week's pay) for:

  • More than four weeks in a row.
  • Or more than six weeks (non-consecutive) during a 13-week period.

But your staff must write to you to start this process.

Pay in Lieu of Notice (PILON)

You can pay staff in lieu of a notice period if you choose to, too. The value of the PILON is either:

  • The value of the contractual notice period.
  • Or one week's notice pay for every year of service, up to a maximum of 12 weeks.

Like SRP, pay in lieu of notice is tax-free up to £30,000 for redundancy payments. Anything higher is subject to tax and NI.

Talk to an Expert

For more information about statutory redundancy payments, contact Croner and speak to our employment law experts on 0808 145 3003.

About the Author

Clare Parkinson has over 20 years’ experience in the Croner Reward business. As Business Manager, Clare leads a team of Reward Consultants who specialise in the delivery of pay and grading related advice, including tailored pay benchmarking and gender pay reports.

Over the years, Clare has contributed to various industry publications on topics such as gender pay, executive remuneration and market pay trends.

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