Feb03

Understanding Redundancy Pay

Author // Joseph Marren Categories // Redundancy

Assessing the risks of redundancy or understanding the rules can all seem very complicated for both employees and employers.

Redundancy is usually an unpleasant experience for both parties but the best way to deal with this is to communicate and keep everyone well informed.

It is important to remember that there are rules in place to ensure fair treatment, and also a broad selection of options for help, not just in seeking out redundancy pay but also for getting back to work.

Who's entitled to redundancy pay?

Redundancy Pay is compensation payment that a person may receive from their employer if their job disappears. Whether or not a person is entitled to receive compensation depends on several factors. They must have:

  • Been a permanent employee (i.e. not employed as partner, casual worker or self-employed)
  • Been employed under a verbal or written contract and been made redundant.
  • Been employed continuously for at least two whole years (With the same company, unless transferred in under the current TUPE regulations.)

If this is all applicable to an employee then they will qualify for statutory redundancy pay which is the basic rate of redundancy pay and is governed by law. It is a common misconception that statutory redundancy pay is a set amount.

The rate of £400 is set as a maximum weekly limit to base redundancy pay on, whereas if an employee earns say, £250 a week, their statutory redundancy pay will be based on that amount.

Statutory redundancy is also due when a contract of 2 years or more expires and is not renewed because of redundancy.

The employer's role

An employee needs to have been dismissed by their employer to qualify for redundancy pay. This includes accepting voluntary redundancy but does not include resignation.

Statutory redundancy pay is governed by law, but an employer is entitled to devise its own redundancy pay policy. Some employers outline a contractual redundancy agreement that offers more compensation or varying terms or rewards. An employer should outline its redundancy terms in the employee’s contract.

If an employee is made redundant, it is the job of the employer to arrange appropriate compensation. The employee should not have to seek out redundancy pay. In the event that there is a dispute over redundancy payment, the Employment Tribunal should be contacted.

How much?

The amount of redundancy pay an employee should receive depends on three things:

  • How long they’ve been employed
  • How much they were paid
  • How old they are.

In addition to statutory redundancy pay, an employer is also obligated to pay an employee throughout their notice period, or pay in lieu of notice.

By regarding these simple outlines, incorrect redundancy pay should be avoidable. However it is worth noting that should any difficulties arise there is a vast range of assistance available for both employers and employees, whatever the issue.

There is a range of websites offering up to date and reliable information on redundancy for both employees and employers dealing with redundancy. You can visit the redundancy sections of these sites for redundancy pay advice.

www.direct.gov.uk

www.acas.org.uk

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