Our Redundancy Solicitors Promise

Before outlining the correct redundancy process, employers and employees alike need to understand what redundancy means.

Redundancy is when you dismiss an employee because the company no longer needs anyone to do their job. There are various motives behind companies making redundancies. Some of the primary examples are because your company is:

• Closing down or changing its location
• Changing the way it works, for instance, relying more on machinery
• Changing the service/product it offers

When an employer makes an employee redundant, the employer must demonstrate that the job will no longer exist.

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:

Statutory redundancy pay comes with 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.

Example:

Chris (aged 25) has worked at an accountancy firm for five years, earning £400 a week. Unfortunately, Chris has just been made redundant, and his pay is as follows:

• Half a week’s pay from when he was under the age of 22 = £400
• Three week’s pay for the three years he worked over the age of 22 = £1,200

Overall, Chris will receive a statutory payment of £1,600. However, this payment is excluding any contractual pay.

Redundancy tax is payable after the first £30,000. This figure may sound unlikely, but other factors are calculated in redundancy pay which includes:

• Contractual notice pay (any form of additional amounts of money that your contract says you can get on top of your statutory amount).
• Non-cash benefits. For example, gifting a company laptop, phone or car. Any assets which become a gift will be given a cash value and added to your total 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.