What are the two types of redundancy pay?
When it comes to how much redundancy pay you can get, there are two types, which include:
1. Statutory redundancy pay. This form of payment is your legal entitlement, calculated by your age, annual salary, and the number of years you’ve spent working at the company.
2. Contractual redundancy pay. This form of payment is extra money that your contract says you can get on top of your statutory amount.
You’ll only get fair redundancy pay if the redundancy is valid. Your redundancy may be invalid if:
- You have faced discrimination.
- The reasoning for your redundancy is unfair.
- The company has made at least 20 people redundant and hasn’t held group consultations.
What is statutory redundancy pay?
You’ll get statutory redundancy pay if you:
- Have been employed by your employer for two continuous years.
- Have lost your job because your workplace had to make redundancies.
- Are classed as an ’employee’ at the company – this includes part-time employees.
Even if you’re not eligible for statutory redundancy pay, you might be able to get contractual redundancy pay. To identify whether you’re eligible for contractual pay, you will need to check your contract.
Can you lose your statutory redundancy pay?
If you’re eligible for statutory pay, you can still lose your right to it if you:
- Turn down an alternative job, which your employer offered.
- Leave before the job ends. For example, if you’ve found another job.
- Are let go for gross misconduct before your job ends.
How much is redundancy pay?
Your redundancy pay will depend on your annual salary (before tax) and the number of years you’ve worked at the company. If you have been working for the company for at least two years, then for each full year you have been working, the company owes you:
|Under 22||Half a week’s pay|
|22 – 40||One week’s pay|
|41 plus||One and a half week’s pay|
Although statutory redundancy pay comes with some terms and conditions, which include:
- Whilst working, if you turned 22 or 41, the higher rates will only apply for the full years you were aged over 22 or 41.
- The maximum weekly amount of redundancy pay you can get is capped at £544, regardless of whether you earn more.
- You can only get redundancy pay for a maximum of 20 years’ work. For example, if you’ve had your job for 28 years, you’ll only get 20 years worth of pay.
Megan (aged 28) has worked at an accountancy firm for ten years, earning £500 a week. Unfortunately, Megan has just been made redundant, and her pay is as follows:
- Half a week’s pay from when she was under the age of 22 = £1,000
- Six week’s pay for the six years she worked over the age of 22 = £3,000
Overall, Megan will receive a statutory payment of £4,000. However, this payment is excluding any contractual pay.
What about holiday pay and pay in lieu of notice?
Suppose you’ve been made redundant, and you haven’t taken some of your holidays. In that case, your employer must either pay you for your untaken holiday or let you take a holiday before you leave.
Pay in lieu of notice:
In a circumstance where your employer decides to end your contract immediately, you can claim payment in lieu of notice (PILON). PILON is essentially compensation from your employer for terminating your contract early.
Is redundancy pay taxable?
The initial £30,000 of your redundancy payout is tax-free. Although you may think your payout won’t exceed this amount, your statutory notice pay isn’t the sole factor calculated. Examples of factors calculated for redundancy pay include:
- Statutory notice pay.
- Contractual notice pay.
- Non-cash benefits. For example, a company car, computer, phone, amongst others. These assets will be given a cash value and added to your redundancy pay.
Tax is applicable on any portion of your redundancy pay above the value of £30,000. The tax rate for any value above £30,000 is the same as your other salary.
Holiday pay and PILON will be treated as other payments rather than redundancy pay as they’re both paying for work rather than compensation for job loss.