Redundancy pay: what are you entitled to?

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Date: 12 March 2020

A female employee clears her desk after being made redundant

If you have been with the same employer for at least two years, you are entitled to statutory redundancy pay if you are dismissed from your job. Dismissal can occur either because your role is no longer required, or if the business is closing or going out of business. If you are selected for redundancy, then you should be entitled to redundancy pay from your employer.

Selection can be based on a number of factors including self-selection or last in, first out policies, but not based on factors such as race, disability etc which would be discriminatory. This could lead to a claim of discrimination. Employees do not need a minimum length of service to make a claim and damages could be much higher.

Here's everything you need to know about what you are entitled to when it comes to redundancy pay.

What is redundancy pay?

There are two different kinds of redundancy pay in the UK:

  • Statutory redundancy – this follows mandatory UK government policy regarding how much money you are entitled to. Your employer cannot pay you less than this.
  • Contractual redundancy – this is any extra money you will be paid on top of the statutory amount as laid out in your contract.

Provided you are working under a contract of employment, have served the same company continuously for two years and are being made redundant, you are entitled to statutory redundancy pay. Your contract may entitle you to extra pay, even if you have been there less than two years or if you are a contract worker. Contractual redundancy pay is more than the minimum compensation you are entitled to.

If you are only getting statutory redundancy payment, you are entitled to:

  • Half a week's pay for each full year you were under 22.
  • One week's pay for each full year you were 22 or older, but under the age of 41.
  • One and a half week's pay for each full year if you are 41 or older.

Your length of service is capped at 20 years.

Are you entitled to redundancy pay?

If you have worked continuously for a company over a two-year fixed-term contract or worked several, shorter contracts that add up to two years or more, you are entitled to redundancy pay. However, you will not qualify if you:

  • Requested early retirement.
  • Your employer offers to keep you on in suitable alternative work which you refuse without good reason.
  • If you find a new role during your notice period and want to leave before your current job ends.
  • If you are fired before your job comes to an end.

Your redundancy pay will always be based on what is stated in your contract, regardless of whether you are on maternity leave, are taking sick leave or have agreed to a temporary drop in wages. Make sure you check your contract and see what applies to you.

And, if you're looking for new employment after being made redundant and need a DBS check for your next role, uCheck can help.

Do you pay tax on redundancy pay?

You won't need to pay tax on statutory redundancy pay, but you will have to pay tax on any additional pay from contractual redundancy if it's over £30,000. Your employer should handle any tax deduction before you receive payment.

However, any other payments such as holiday pay, payments given in lieu of notice or any bonus payments will be taxed at the normal rate.

Payment in lieu of notice

If your employer is going to terminate your employment, they must usually give you notice of at least one week if you have been employed for less than two years, and one week for each year if you have been employed between two and 12 years (12 weeks' notice for 12 years or more).

However, your employment may be ended without notice if payment in lieu of notice is included in your contact. In this case, you will receive pay instead of being allowed a notice period. You will get the pay you would have received during your notice period and potentially extras such as pension contributions.

What if you haven't received redundancy pay?

You should receive your payment from your employer the day you are supposed to be leaving work, or on an agreed date. If you have not received your redundancy pay, you should contact your employer to find out about the delay and outline what you are entitled to. Make sure you keep copies of any correspondence, such as emails. If this does not work, you can get help from Acas or Citizens Advice.

What if your employer goes out of business?

If your employer has gone out of business and cannot pay you, you will still receive your statutory redundancy pay as it is your legal right, but the State will pay it. The money will be claimed via the insolvency practitioner dealing with the company's administration and will come from the National Insurance Fund. You can also claim up to eight weeks' unpaid wages, holiday pay, compensatory notice pay and any outstanding pension contributions.

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