Redundancy payments

An employee who is being made redundant is entitled to a lump-sum statutory redundancy payment if they have at least two years continuous service and are not subject to any other legal exceptions.

The amount of statutory redundancy payment an employee is entitled, will depend on their age, length of continuous service and normal pay.

The current statutory maximum is £380 per week [2010].

Legal exceptions to redundancy payments

Certain categories of employee are not legally entitled to redundancy payment. They include those employees:

Who are offered suitable alternative employment before the date on which redundancy is due to take place and unreasonably refuses
Whose service ends at the end of an apprenticeship contract. Care should be taken in this regard and HR advice sought in these circumstances.

Redundancy payments and age discrimination

In 2005 the Government looked at whether the statutory redundancy payments scheme would be compliant with the Employment Equality (Age) Regulations, which came into force on 1 October 2006.

Differential payments on the basis of age were objectively justified on the basis that young workers tend not to be out of work for as long as older workers and tend not to suffer such a big fall in pay when switching jobs.

However the Government concluded that the upper and lower age limits in the scheme could not be justified. As such, the lower age limit of 18, the upper age limit of 65 and the taper at 64 no longer applies.

How to calculate redundancy payments

Employees are paid for each period in which they were in a particular age band. The payments for each of these periods should be calculated and then added together. The age bands and respective entitlements are as follows:

0.5 week’s pay for each full year of service where age during the year is less than 22
1.0 week’s pay for each full year of service where age during the year is 22 or above, but less than 41
1.5 weeks’ pay for each full year of service where age during the year is 41+

Employees may be entitled to higher payments if their contracts of employment provide for this.