The Good Work Plan: defining employment status
To be eligible for redundancy pay, employees must be working under a contract of employment, have been continuously working at your business for at least two years, and be dismissed by reason of redundancy.
Statutory redundancy pay is the minimum amount employees who’re eligible are legally entitled to. Employees who receive statutory redundancy pay should get:
|For each complete year of service||Entitlement|
|Under age 22||Half a week’s pay|
|Age 22 to 41||One week’s pay|
|Age 41 or over||One and a half week’s pay.|
Redundancy service cap
Only the last 20 years of service count for redundancy pay purposes. So, if someone’s made redundant at age 50 with 25 years’ service, it’s only the service between age 35 and 55 that counts.
To see how much redundancies could cost you, head over to our redundancy calculator here.
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You may be required to pay employees more than the statutory redundancy pay if their contract of employment says you will.
By law, contractual redundancy pay cannot be less than the statutory redundancy pay rate.
There are a few circumstances that mean you don’t have to pay an employee redundancy pay. The main ones are:
Redundancy pay qualifies for special tax treatment. As a result, redundancy pay up to £30,000 is exempt from tax.
However, if a redundant employee is owed things like holiday pay, pay in lieu, wages and bonus payments, these are not exempt from tax. You should deduct tax and National Insurance contributions from these before remunerating the employee.
A lay-off is when an employee is laid off work for at least one day. Short-time working is when an employee’s days or hours are cut. Either of these can be used in the event of an employer being unable to provide employees with enough work.
Providing they’re eligible, employees can claim for redundancy pay if they’ve been temporarily laid off with no pay, or put on short-time working with less than a half week’s pay.
To make a claim for redundancy pay, employees must have been laid off or put on short-time working for either four consecutive weeks, or for six non-consecutive weeks in a 13 week period.
Making a claim
If an employee who’s been laid off or put on short-time wishes to claim statutory redundancy pay, they must do so, in writing, within four weeks of their last non-working day of the lay-off or short-time working.
Once you’ve received the employee’s claim, you have seven days to either accept it or provide them with a written counter-notice.
If you don’t provide the employee with a written counter-notice, they have the right to assume you’ve accepted their redundancy claim.
What’s a counter-notice?
This is where you let the employee know that you expect to be able to provide them with enough work soon. ‘Soon’ means that full-time working must begin within four weeks of your counter-notice, and must last for at least 13 weeks. If circumstances change, you can withdraw your counter-notice.
To receive redundancy pay if you haven’t given counter-notice, employees must resign – the timing of which is critical.
Employees have a three week window to hand their notice in, and this starts from either:
You should only consider laying off employees if:
For an idea of how much redundancy can cost you, check out our redundancy calculator. Simply fill in the employee’s age on termination, how many years of service they’ve completed, and what a week’s pay is.
Then, we’ll tell you how many weeks’ pay they’re due, what the statutory payment is, and what the uncapped payment would be.
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