Calculating Redundancy Pay

Woman leaving office with redundancy payment
 Shereen Murphy
Legally reviewed by: Shereen Murphy Updated:

Redundancy can be difficult to navigate but knowing your rights is the first place to start. If you’re facing redundancy you may be eligible for redundancy pay.

There are two types of redundancy pay:

  • ‘statutory’ redundancy pay – Money entitled to you by law and paid by your employer.
  • ‘contractual’ redundancy pay – Extra money, detailed in your contract, that your employer pays you on top of the statutory amount. By law, your contractual redundancy pay can’t be less than the statutory amount.

Eligibility for Statutory Redundancy Pay

You are eligible for statutory redundancy if:

  • You have been in employment with your employer for a minimum of 2 years continuously.
  • You’ve lost your job due to a genuine need to make redundancies in your workplace.
  • You are a type of worker called an ‘employee’. This also includes part-time employees.

Eligibility for Contractual Redundancy Pay

You are eligible for contractual redundancy pay if:

  • Your employer has stated in your contract that you will receive extra payment on top of your statutory redundancy.
  • Your work intranet or staff handbook states, that you will receive contractual redundancy.

Reasons For Redundancy

You can face redundancy for the following reasons:

  • The business you work for has or will cease to exist.
  • The business will cease to exist in the location where you work.
  • The need for employees in a particular department in the business has or will cease to exist. This still counts as a redundancy if a smaller number of employees are to complete the same amount of work.

If you have experienced unfair dismissal our solicitors can help you make a claim.

How to Calculate Your Redundancy Payment?

Your redundancy payment is based on your age, weekly pay, and the number of years working your job. You only receive statutory redundancy pay if you have worked for your employer for a minimum of 2 years. Additionally, redundancy pay is not available if you are classified as a ‘worker.’  A worker is usually classified if they have a contract or arrangement to do work or services personally for a reward.

Your weekly pay is the average amount you have earnt per week over the past 12 weeks prior to the day you received your redundancy notice. If during these 12 weeks you were paid less than normal because you were on furlough or on maternity leave, use what you would have been paid normally when calculating your redundancy pay, as opposed to what you’re receiving currently.

As of the 6th of April 2022, you are entitled to a week’s gross pay (capped at £571 per week) for each year of service. This is multiplied by 0.5 for each year of service under 22 years of age or multiplied by 1.5 for each year of employment undertaken aged 41 and over (capped at 20 years of service.).

The Gov.UK website has a redundancy pay calculator to take the hassle out of calculating your redundancy.

Your employer may have their own policies so it’s always worth checking them against your redundancy pay.

What if My Employer Can’t Pay Redundancy Pay?

In the event of your business closing down, where possible, your employer should always pay your redundancy. However, there can be times when your employer refuses. This may be due to the business’ insolvency or the business not having enough money.

If your business has left you without redundancy pay there are some steps you can take.

What to do if the Business is Insolvent

If your employer is ‘insolvent’ (also referred to as being in ‘liquidation’ or ‘administration’, someone should get in contact with you and tell you the next steps to take. Additionally, you can claim other money you’re owed if your employer is insolvent. For example, you can claim holiday pay or notice pay. This applies to you even if you’ve worked at the business for less than 2 years and cannot get statutory redundancy pay.

If Your Employer Refuses to Pay you

If your employer refuses to pay you, you can apply to the Secretary of State for the payment to be paid out of the National Insurance Fund. The process of claiming your redundancy payment can be complicated but our team of employment law solicitors can assist you through each step of the process.

Gov.UK provides further information on the requirements to make a claim for redundancy pay.

Do You Have to Pay Tax on Redundancy Payments?

You will have to pay tax on a redundancy payment but only if the payment is more than £30,000. Your employer should automatically deduct tax for you.

If you wish to put some of your payment into a pension you will need to do this yourself.

Can I lose My Right to Statutory Redundancy Pay?

Yes, you can lose your right to statutory redundancy pay. This can happen if you:

  • turn down a suitable and reasonable job offer from your employer without a good reason.
  • want to leave your job before your agreed-upon last day of work.
  • lose your job for gross misconduct.

Can an Employer Retract a Redundancy Notice?

Your employer can retract your redundancy notice but only if you agree to this. Retracting your redundancy notice could be seen as your employer offering you a suitable employment option. Therefore, by turning this down you may forsake your redundancy payment. To be sure you are making the best decision, our employment law solicitors can provide help and advice to achieve your desired outcome.

Can Redundancy Lead to an Unfair Dismissal Claim?

There are times when redundancy can be classed as unfair dismissal. This can happen by not following the correct processes or when discrimination singles out a group or an individual for a dismissal. If there is unfair dismissal our employment solicitors can help you can get a compensatory award for any financial loss following the dismissal. Your employment solicitor will be able to advise if you have a claim and provide personal support for your individual case.

You only have 3 months from the date of dismissal to make an unfair dismissal claim. Therefore it’s important to get in contact as soon as possible.

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