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A Guide To Statutory Redundancy Pay

A Guide To Statutory Redundancy Pay

It’s important to understand what a statutory redundancy payment is, especially as an employee. Typically, you’ll be entitled to claim statutory redundancy pay if you’ve been employed by the same company for two years or more.

However, many individuals remain unaware of how much pay you can get. Knowing this vital information is key. Although it’s difficult to think about being made redundant in the future, workers should know how much their employer pays, and what the process entails if it were to ever happen.

Not to worry if you’re unsure about statutory redundancy pay – we’re here to help. To learn more about redundancy, entitlements, exceptions, and the current payment calculations, continue reading.

 

What is Redundancy?

What is redundancy? Redundancy is the act of being dismissed from your job. However, it’s not the act of being fired – redundancy only occurs when employers need to lower their number of employees. It’s a legal requirement that if you’re made redundant, it should be in a fair way.

For example, it should be because of your experience or your wages, as opposed to your gender, age, or whether you’re pregnant or disabled. If you’re let go because of anything other than your skillset or level of experience, then it could be classed as unfair dismissal.

Being made redundant isn’t usually personal – it’s more economical. It happens if an employer can’t afford to keep you on or if the company is going out of business. Figures show that between February and April 2024, 3.4 per 1000 employees were made redundant, or taken voluntary redundancy in the UK.

If you’re in the process of being made redundant, you might be eligible for a statutory notice period, which is the chance to move into a different role, time off to find a new job, and of course, redundancy pay. How much statutory redundancy notice you get differs, depending on how long you’ve been employed.

According to the Advisory, Conciliation and Arbitration Service (Acas), an employee must be given a statutory notice period, which is a minimum notice period for people who are legally classed as an employee and have worked for a company for at least one month. If you’ve worked for your current employer for:

  • 1 month to 2 years – you’ll receive 1 week statutory notice
  • 2 to 12 years – you’ll receive a 1-week statutory notice for each full year you’ve worked
  • 12 years or more – you’ll receive a 12-week statutory notice

 

Simply put, if you’ve worked for your employer for 3 years and 5 months, you’ll be entitled to a statutory notice period of 3 weeks. If your business has become insolvent, you might need to apply to the government for any owed wages and redundancy payments.

 

Entitlement to Statutory Redundancy Pay

Several different factors determine whether you’re eligible for redundancy pay, including the length of your employment and the reason for your redundancy. You should be eligible for redundancy pay if:

  • You’ve been employed by the same business or employer continuously for two or more years
  • You’ve lost your job because the business legitimately needed to reduce its workforce
  • You’re classified as an employee working in a full-time or part-time position

 

You must tick all three boxes to qualify for redundancy pay. However, if you’re on a fixed-term contract that doesn’t renew as there’s no need for the job anymore, then you might also be entitled to redundancy pay.

This is only the case if your fixed-term contract was for two or more years, or if you were on a shorter contract that followed on to another, making a total of two years or more.

 

Exceptions

Unfortunately, not everyone is eligible for statutory redundancy pay. You won’t be able to take redundancy payments if:

  • Your employer offers to keep you on
  • Your employer gives you another suitable job
  • You’re a domestic servant and your employer is a direct or immediate family member
  • You’re an apprentice, crown servant, or a former registered dock worker
  • You’re dismissed for any other reason than the fact that the business can no longer afford to keep you or the position is redundant (this includes being dismissed for misconduct – as this doesn’t count as redundancy)

 

However, don’t worry too much – if you’re not eligible to take redundancy payments, you might be covered by other arrangements

 

How Much Redundancy Pay Do You Get?

The amount of redundancy pay that you receive typically depends on your age, earnings before tax, and how long you’ve worked for your employer. If you’re:

  • Under the age of 22, you’ll be entitled to half a week’s pay for each full year that you worked for your employer
  • Older than 22, up to the age of 40, you’ll be entitled to a full week’s pay for each year that you’ve worked for your employer
  • Over 40, you’ll be entitled to a week and a half’s pay for each year you worked for your employer

 

It’s important to understand your redundancy rights. If you’re entitled to redundancy, you won’t be taxed on your statutory pay. Typically, your weekly pay is the average that you’ve earned per week over the past 12 weeks before receiving your redundancy notice.

If you were made redundant on or after 6 April 2024, your weekly pay is capped at £700, meaning the maximum statutory redundancy pay you can get is £21,000.

However, if you were made redundant before this date, the amount will be lower. The best thing to do is to complete a redundancy payment calculation.

Some employees receive extra money on top of their statutory amount. This is called contractual redundancy pay (sometimes known as enhanced redundancy pay). By law, if you receive contractual redundancy pay, it can’t be lower than the statutory amount.

When you receive your redundancy pay, it’s likely that your employer will have already deducted the tax from it. However, it’s unlikely they’ve deducted the right amount, meaning you might be able to claim some back.

 

Help With Your Accounts

At LJS Accounting Services, we’re here to help with any tax queries you might have regarding statutory redundancy pay. Our expert team are on hand to help you.

While working with us here at LJS Accounting Services, you can rest assured knowing that everything our accountants do is compliant with HMRC and tax-efficient. To find out more about our services, feel free to get in touch with us today. We look forward to hearing from you.

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