Our Crunch advisors are only able to answer accountancy related questions. If you have an employment question please either leave a comment below or phone the Acas Helpline on 0300 123 110.
Who's entitled to a redundancy payment?
You're entitled to a payment from your employer if you're an employee and:
- You have a permanent (open-ended) contract and
- You have at least two years continuous service with your employer on the 'effective date of termination' (see below) and
- You're made redundant.
If you're employed on a Fixed Term Contract, with two years continuous service, which ends without being renewed because of a redundancy situation you may also be due a redundancy payment. See the information on the Direct Gov site.
Information on dismissal by redundancy
Redundancy is a ‘fair’ means of dismissal by your employer if the procedures they follow and the circumstances are correct. A redundancy situation is applied when there's no more, or not enough, work for you and your colleagues (for example if your employer closes or relocates the business, or now needs fewer workers). For more details about the situations in which you can be made redundant see our Guide here.
Your employer needs to take the following steps to ensure the redundancies are ‘fair’:
- Employees need to be informed of proposed redundancies. The Trade Union and Labour Relations Act 1992 requires employers with 20 or more staff to inform and consult relevant union or employee representatives about their proposals before they're implemented - this is called Collective Consultation
- Your employer must undertake Consultation, with the ‘affected employees’ (or their representatives) with a view to ‘reaching agreement’. Individual consultation (that follows collective consultation where this is required) should take place before any redundancy dismissals are confirmed. Consultation isn't a negotiation, but the communication your employer has with you about Redundancies - it must be more than just an announcement and they should consider alternative ideas to redundancy (e.g. voluntary redundancies, reducing pay, reducing hours, job sharing etc.) and explain their decisions to you
- Consultation should be completed before any redundancy notices are issued
- Employers proposing to dismiss 20 or more employees must complete a 30-day consultation period; where 100 or more redundancies are proposed this consultation period rises to 45 days (in England, Wales and Scotland), but is 90 days in Northern Ireland. If employers fail to follow this process, employees may be entitled to a ‘protective award’. In the long-running ‘Woolworths’ case, in May 2015, the European Court of Justice judged that the requirement for collective consultation is triggered only when the employer proposes 20 or more redundancies at one establishment (and not across the whole of the business/across separate premises)
- Employers must also notify BEIS if they propose to make 20 or more redundancies. From August 2020 there is new guidance which you can see at gov.uk
- Your employer must select those who are at risk of redundancy in a fair way (this is called defining the redundancy ‘pool’ - for example an appropriate pool might be the employees who carry out the kind of work which is reducing or who work at the site that is proposed for closure) – the factors they use in deciding who stays and who goes must be fair and not discriminatory. The selection criteria should include skills, qualifications, training, experience, attendance, time-keeping, disciplinary records, future potential, flexibility and performance. You can read about how disabled staff should be treated during a Redundancy exercise here. Recruitment style assessment centres may be appropriate in some large-scale redundancy exercises. Input from managers who have experience of working with the employees should be included as one of the factors, as should appraisals.
- They must consider offering you any alternative work that is available and suitable. See our new article here with more details about 'suitable alternative employment' - what is it, when does it apply, do you have to take it etc.
- They should offer you a right to appeal you the decision to make your job redundant (there is no statutory right to an appeal but it is good practice if an employee thinks they have been unfairly selected for redundancy)
- They must pay you your Statutory Redundancy Pay entitlement.
Without all these steps being taken your redundancy could be seen as an unfair dismissal by an Employment Tribunal.
Gwynedd Council v Barratt & Other 2020
In Gwynedd Council v Barratt & Other, in 2020, the EAT said that when selecting suitable alternative employment, an interview process could be unfair. In this case, several primary schools were closed and combined into one new school. The council decided that the staffing of the new school would be decided by an interview process. The two claimants in this case were unsuccessful in getting jobs in the new school; they were not consulted with and had no right of appeal against the decision.
The original ET found the redundancy process was unfair and the EAT agreed. The EAT said a competitive interview process may be appropriate if staff were applying for different roles, but as the claimants were applying for essentially the same jobs as they already held, requiring them to interview for their own jobs without consultation or appeal was unfair. In such cases, a redundancy ‘pool’ should be identified and objective selection criteria applied.
Aramark (UK) Ltd v Fernandes
In Aramark (UK) Ltd v Fernandes, Mr Fernandes was due to be made redundant. He argued that, before being made redundant, he should have been added to Aramark’s list of ‘additional workers’, which was a pool of workers to be called upon to work as and when work was available. Without doing this, Mr Fernandes said he had been unfairly dismissed.
These ‘additional workers’ were not employed by Aramark and were not guaranteed work. The original Employment Tribunal agreed with Mr Fernandes and said that, by not consulting with him about the pool of additional workers, his dismissal was unfair. However, the Employment Appeal Tribunal in 2020 disagreed and said that if Mr Fernandes had been added to the list of additional workers, this would not have avoided his dismissal by reason of redundancy, as he would not have been provided with work that guaranteed alternative employment.
Changes to redundancy consultation by Agency Workers Regulations 2011
With the introduction of the Agency Workers Regulations in 2013 the regulations were amended to change employers' information and consultation obligations where there is a collective redundancy consultation (for example where there are 20 or more redundancies).
Since 2011 employers need to provide information to trade union representatives, or other appropriate representatives, on the number of agency workers working temporarily for and under the supervision and direction of the employer and the part of the organisation where they agency workers are working and the type of work the agency workers are carrying out.
Short-time and temporary layoff
Statutory redundancy pay can be claimed from your employer if you've been temporarily laid off for either more than four weeks in a row or more than six non-consecutive weeks in a 13 week period.
You should write to your employer telling them you intend to claim statutory redundancy pay. This must be done within four weeks of your last non-working day.
You can read more details in our guide to short-time working and lay-off's here.
Notice of redundancy
The minimum notice of redundancy your employer must give you is one week for each completed year of service you have with them (up to a maximum of 12 weeks). You should be paid for your notice period or receive pay in lieu of this time.
Information specific to the coronavirus 2020 pandemic - an employee could be made redundant while they are on official furlough (under the original furlough scheme), and could be given notice during the furlough period, or be paid in lieu. However, the position in relation to notice pay during furlough is complex - read more.
However, under the extended furlough scheme (effective 1st November 2020), the rules have changed and from 1st December 2020, an employee cannot be under notice of termination for redundancy while on the furlough scheme (either contractual or statutory notice). This means that employers, if they are making staff redundant, need to remove them from the furlough scheme during the notice period and pay for this period at 100%. We believe this is the position until the 30th September 2021, but we will revisit this if it changes.
For details of your pay rights during your notice period go to this link.
The effective date of termination
The effective date of termination is defined as:
- where the contract is terminated by notice, the date on which that notice expires (including where notice is given but the employee isn't required to work their notice period but remain at home, which is referred to as 'garden leave)
- where the contract is terminated without notice (including where a payment in lieu of notice is paid) - the date on which the termination takes place (their last day at work).
In some circumstances, though, the effective date of termination can be extended to ensure that an employee is not deprived of their statutory rights by dismissing them without notice before they reach the qualifying period to present a claim for unfair dismissal or entitlement to a redundancy payment. For example, if an employee is employed for 23 months and then is dismissed without notice a couple of days before completing their two-year period of employment, the date of termination can be extended to account for their statutory entitlement to one weeks notice period (so they would be entitled to claim unfair dismissal or a redundancy payment). However, the EAT confirmed in August 2018 in Lancaster & Duke Limited v Wileman, that this does not apply if the employer is entitled to terminate without notice on the grounds of gross misconduct.
Statutory Redundancy Pay (SRP)
This is calculated depending on your age, length of continuous service with your employer and your weekly earnings:
- You receive half a weeks pay for each completed year of service up to the age of 21
- You receive one weeks pay for each completed year of service between ages 22 and 40
- You receive one and a half weeks pay for each completed year of service over the age of 41
- The maximum number of year’s service that can be counted is 20
- SRP is based on your 'weekly' pay, under your contract of employment at the time of redundancy - therefore if you currently work part-time (but have previously worked full-time and your current part-time hours are on a permanent contractual basis and are your normal working hours now) your employer is only obliged to calculate your redundancy payment on your reduced part-time salary
- There’s also a limit on what can be counted as a week’s pay – £544 per week (in England, Scotland and Wales), and £560 in Northern Ireland from 6th April 2021, increasing to £571 from 6th April 2022 (in England, Scotland and Wales)
- The total maximum statutory redundancy pay you can receive is £16,320 from April 2021 (in England, Scotland and Wales), increasing to £17,130 from 6th April 2022; in Northern Ireland it is £16,410.
- SRP is not currently taxable
- To calculate a week’s pay (which you need to do for redundancy payments, holiday pay and pay during notice periods) this calculator on the Gov.uk site can help.
A week's pay - how much pay should you receive?
- A week's pay is calculated in accordance with the definition of a working week in the Employment Rights Act 1996 which says that a 'working week' includes overtime only if this is contractual, i.e. it's specified in your employment contract
- However, over time this has got more complicated and other types of overtime may now be included when calculating a week’s pay - we’ve summarised the new position in this guide, 'How to Avoid Confusion When Calculating Holiday Pay'
- For example, if you work with fixed hours and pay then the amount due for a weeks pay is the normal pay you receive for a weeks work (subject to the redundancy cap above)
- If you work with fixed hours and pay then the amount due for a weeks pay is the normal pay you receive for a weeks work
- If you work with variable hours and pay (e.g. bonus, commission), a weeks pay equals the average hourly rate over the preceding 12 weeks of pay multiplied by your normal working hours
- If you work shifts a weeks pay equals your average weekly hours over the preceeding 12 weeks of pay at your average hourly rate
- If you work with no normal working hours a weeks pay is the average pay you received over the preceding 12 weeks (that were paid)
- A week's pay will generally not include benefits in kind - pension, car, health cover. Bonuses, if they're discretionary, may be excluded too. Any salary that's sacrificed through a 'salary sacrifice' scheme may also not be included. Annual contractual bonuses may be included on a pro-rata basis if they're possible to quantify at the point of calculation
- On 31st July 2020, the definition of a week’s pay for staff who have been furloughed during the coronavirus pandemic, has been amended. This means that where an employer makes a furloughed employee redundant, the employer will need to make the statutory redundancy calculation based on the employee’s normal (pre-furlough) pay rather than on their furlough pay.
NB Your employer may offer more generous redundancy payments in your contract (but SRP will be included within this higher payment).
Other useful information about redundancies
- You can be made redundant if you are on furloughed leave (during the coronavirus 2020 pandemic). You cannot be made redundant (or given notice of redundancy) if you are on the new Job Support Scheme (starting 1st November 2020)
- You won't be due a redundancy payment if you resign
- If your employer needs people to volunteer to take redundancy, you volunteer and are accepted, you’ll qualify for a redundancy payment and appropriate notice period. Your employer is likely to reserve the right NOT to accept all voluntary redundancy applications and if you application is not accepted, it’s unlikely you will be able to appeal this
- If you’ve been given notice of redundancy, you can ask to leave earlier (by giving ‘counter’ notice). If your employer agrees to this you will still qualify for a redundancy payment
- If your employer offers you a job that is a ‘suitable’ reasonable alternative to your old job you will be required to accept this, unless, you do NOT consider it suitable (e.g. it has worse conditions of employment, salary, hours, different responsibilities or location). In this situation you should be able to turn this job down and receive a redundancy payment
- If your employer offers you a new job that’s a reasonable alternative to your old job (not a ‘suitable’ alternative), you can accept the new job on a four week trial period. If at the end of the four weeks you don’t want to stay in the new job, you’ll still qualify for a redundancy payment. If you stay in the new job after these four weeks, you’ll be considered to have accepted the new job, unless you’ve said differently, and will forfeit your redundancy payment. You can learn more about Statutory Trial periods in our article on whether you need to accept a job offer from the company that have made you redundant
- If you’re offered a new job that’s considered a reasonable alternative but you refuse it without a good reason, you may not be entitled to a redundancy payment
- See our new article here with more details about 'suitable alternative employment' - what is it, when does it apply, do you have to take it etc.
- If a redundancy situation arises while you’re away on maternity, adoption or Shared Parental Leave, you must be offered a suitable alternative vacancy if one is available. A European Court of Justice case in September 2013 (Halliday v Creation Consumer Finance Ltd) found that an employee absent on parental leave could be made redundant, as long as the reason for the dismissal was not the parental leave (this will apply to maternity leave and paternity leave too)
- If you're off work due to sickness your employer should be in regular contact with you if there's a redundancy situation, to explain the situation and keep you informed of opportunities and news
- When you receive Statutory Redundancy Pay (SRP) this doesn't affect any entitlement you have to claim Job Seekers Allowance or other benefits
- Your employer may offer enhanced redundancy pay and notice periods in your contract
- You have a legal right to take a ‘reasonable’ amount of time off work to look for other work or undertake training if you’re declared redundant, while you are under notice of redundancy (and have at least two years service). However ‘reasonable’ is not defined in law. In addition you should legally be paid for some of this - your employer is obliged to pay you for the equivalent of ⅖’s of a normal week’s pay (even if you take more time off - e.g. if you take a five days off to look for work/train, your employer should pay you for two days of this). Of course, your employer may offer you longer time off on full pay
- The first £30,000 of redundancy pay is tax free and NIC free at the moment. Payments over £30,000 are currently taxable, but from 6th April 2020 employers NIC contributions (of 13.8%) will also need to be paid on payments over £30,000 by the Employer (but not employee NIC’s)
- From April 2016 the government announced that public bodies can recover redundancy and other exit payments from highly paid employees who return to work in the same part of the public sector within a short period of leaving. The measures will apply to anyone earning over £80,000 who returns to the public sector within 12 months. The government are expected to resurrect this idea in 2020.
- If you don't automatically receive SRP, when you're entitled to it, you can make a claim to an Employment Tribunal
- You can see details about redundancy and insolvency from the government's Insolvency service here.
In July 2015, the government started consulting on banning six-figure ‘golden goodbyes’ to public sector workers. In October 2016, the government confirmed the ‘exit payment framework’ would include:
- A maximum of £80,000 salary would be used to base the exit payment on
- A maximum of three weeks per year of service that could be paid
- Capping total payments at £95,000
- A maximum of 15 months salary that can be paid as a redundancy payment.
It was expected these public sector measures would be implemented by the summer of 2017 (in England), but they were not. However, in July 2020, the government finally published draft regulations to implement this, and the regulations finally came into force from 4th November 2020.
However, on 12th February 2021, the government revoked the £95,000 payment cap, so this no longer applies - for the time being! The government have announced that “HM Treasury will bring forward proposals at pace to tackle unjustified exit payments”.
You can see details about redundancy and insolvency from the government’s Insolvency service here.Our Crunch advisors are only able to answer accountancy related questions. If you have an employment question please either leave a comment below or phone the Acas Helpline on 0300 123 110.
If you are an employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk - a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.