Step 6: Work out redundancy pay
You must pay at least the legal minimum ('statutory') amount of redundancy pay to your employees who have worked for you for at least 2 full years.
During the coronavirus (COVID-19) pandemic, employees continue to have the same redundancy rights, including redundancy pay. This includes employees who have been on furlough.
You should check your employment contracts as they might say you need to pay more than the statutory amount.
You can choose to pay higher amounts if you want to encourage voluntary redundancies.
Those in the following types of work do not qualify for redundancy pay:
- armed forces
- crown servants
- domestic service, where they're a member of the employer's immediate family
- share fishing
- apprentices who are not employees at the end of their training
The maximum statutory pay for a week is £544. The rate can change each year.
The maximum total statutory redundancy pay is £16,320.
Calculating how many weeks redundancy pay is due
How many weeks statutory redundancy pay someone is entitled to depends on all of the following:
- the employee's age
- how long they've worked for you (up to the last 20 years)
Statutory redundancy pay is capped at the last 20 years that the employee has worked for you.
For example, Toni has worked at your company for 27 years. You only have to calculate their redundancy pay based on the last 20 years.
Working backwards from the day their notice starts, you must add all of the following that apply:
- 1 and a half week's pay for each full year they were aged 41 years or older
- 1 week's pay for each full year they were aged 22 or older, but aged under 41
- half a week's pay for each full year they were aged under 22
If the employee has regular working hours and pay
You base their redundancy pay on their normal weekly pay before tax (gross weekly pay).
A 45-year-old employee is being made redundant after working for their employer for 22 years.
Their average weekly pay is £300 before tax.
They’re entitled to:
- 1 and a half week's pay x 4 = £1,800 (for the 4 full years they were aged 41 or over)
- 1 week’s pay x 16 = £4,800 (for 16 of the 18 full years they were aged 22 to 41)
They do not get anything for 2 of the years they worked, because the maximum statutory redundancy pay is capped at the last 20 years.
In total, they’re entitled to £6,600 statutory redundancy pay.
If the employee's pay changes from week to week
Work out their weekly pay by getting an average figure for a 12-week period. Use the 12 weeks up to the day they got their redundancy notice.
If they did not work for a whole week during that time – for example they were on holiday or off sick – replace it with an earlier week.
You must share in writing with employees how you've calculated redundancy payments.
Overtime, bonuses and commission
Your employee’s weekly pay should also include:
- regular overtime, if the employee's contract says they must get paid for it
- any bonuses or commission
Furlough and redundancy pay
If your staff were put on furlough, they may have received reduced pay. Their wages must be topped up to 100% when calculating redundancy pay.
For example, if an employee's weekly pay is usually £300 but they received 80% pay while on furlough, their redundancy pay must be their full normal pay of £300 a week.
When you must make the payment
You should pay redundancy no later than an employee's final pay day. You can pay later than this if you both agree another date in writing.
You should tell employees when and how you’ll make the payment. For example, if it’ll be included in their monthly pay or as a separate payment.
If you do not pay an employee on time, they might be able to make a claim to an employment tribunal.
If you cannot afford redundancy pay
If making redundancy payments puts your organisation at risk, you can ask the Redundancy Payments Service (RPS) for financial help.
If you're insolvent you can get RPS to make your redundancy payments and recover the debt from your assets.