In this month’s blog, we look at redundancy pay and explore how it can smooth –or worsen – the redundancy process.

Statutory Redundancy Payment

There is a statutory minimum which must be paid as a redundancy payment if an employee has worked for you for two years or longer. The calculation of how much pay a person is entitled to depends on various factors: their age, their length of employment with you, whether they work regular or variable hours, and the amount they earn per week (capped at a figure published by the Government each year). As with many statutory minimums, it is a small amount and does not go  far towards compensating someone for losing their job.

Sadly, many businesses will only be in a position to pay the statutory amount. When I am advising businesses about how to improve their reputation, employee engagement and their ability to recruit, I encourage them to consider what benefits they might be able to offer in addition to the statutory payment.  It is hard for small businesses to compete with large corporate companies in terms of the package they offer to employees.  Enhanced redundancy pay might be a way that they can improve their offer.

The calculations

You must share the figures, including how they have been calculated, with the employee during their notice period. 

Check and double check the amounts.  It can be  stressful if the employee is given incorrect figures or paid an incorrect amount. I have seen both and it is upsetting for the individual and embarrassing for the employer. The redundancy pay should be paid to the employee no later than their final pay day.   Late payment is stressful and unkind.

Enhanced terms

Many larger organisations will offer enhanced redundancy pay – that is, something better than the statutory minimum.  A company may enhance redundancy pay by offering a higher amount to people who volunteer for redundancy and are made redundant (not all volunteers are accepted).  It can entice people to volunteer for redundancy and be useful when a company is willing to accept volunteers.

The most common enhancement is for a company to calculate redundancy pay based on the employee’s This can make a redundancy payment much more generous – particularly for higher paid employees. 

Another common enhancement is to offer to double the statutory redundancy payment.  You can also make employees eligible to receive a redundancy payment from the first day of employment  rather than  requiring them to have been employed for at least two years. You could increase the number of weeks paid for each year of service.  

Getting redundancy pay right

Whatever enhancement you choose to offer, beware that this can set a precedent for future redundancy processes and you may find you need to stick to it in future to avoid any potential discrimination or unfair treatment.

Of course, many businesses just pay the statutory amount and there is nothing wrong with that.  After all, redundancy is often due to  financial challenges and it is useful for a company to be able to keep the costs as low as possible – they have a habit of growing hugely, without any additional impetus.

This is why it is so important  during the planning process to consider the terms of employment of each individual employee who is put at risk of redundancy, so that you can calculate the potential costs to the business. And a word of warning – it is not fair or lawful to select one employee for redundancy over another, just because their redundancy payment will be lower.

If you would like further information on redundancy and redundancy pay, then consider buying my book “Redundancy with Love”

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Jill Aburrow - HR Consultant

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