How Is Statutory Redundancy Pay Calculated?

Workers that have been made redundant from their jobs are often entitled to statutory redundancy pay. If you own a business that needs to downsize, it’s also important to know the rules of redundancy. Keep reading to learn more about who pays statutory redundancy pay and how it’s calculated.

What is statutory redundancy pay?

Statutory redundancy pay refers to payments received by employees after being made redundant. These are based on the employee’s age, weekly pay, and the amount of time they spent working for the employer. There are limits to the amount of statutory pay you can receive, which we’ll take a more in-depth look at below.

Who is entitled to statutory redundancy pay?

Not all workers are automatically eligible for statutory redundancy pay. The main requirement is that employees have worked for two years of continuous service with their employer. If you’ve been with your employer for less than two years, you won’t be eligible for this payment.

Workers also have no entitlement to statutory redundancy pay in the following situations:

• The employer offers suitable alternative work which is refused without a valid reason.

• The employer offers an alternative position which is accepted.

• The employee was dismissed for misconduct rather than made redundant.

There are also a few industries or types of jobs that aren’t covered under the usual statutory redundancy rules. These include:

• Share fishermen and registered dock workers

• Crown servants

• Members of the armed forces

• Members of the police services

• Apprentices who have not made the transition to employee

• Domestic servants who are members of their employee’s family

Workers who were temporarily laid off or made redundant in the short term might also be eligible for statutory redundancy pay. This applies if they were made redundant for over six non-consecutive weeks in a 13-week period, or for more than four consecutive weeks.

Who pays statutory redundancy pay?

The rules surrounding this type of payment are set out by the Government. However, when it comes down to the question of who pays statutory redundancy pay, the responsibility sits with the employer. Redundancy payments should be made no later than the employee’s final pay day, unless a later date is agreed upon in writing.

If you’re a business owner facing insolvency, you can turn to the Redundancy Payments Service (RPS) for assistance. The debt can potentially be recovered from existing assets.

Is statutory redundancy pay taxable?

Statutory redundancy pay is not taxed up to a limit of £30,000. However, some employees will receive contractual redundancy pay as well. These types of payments are laid out in the employment contract and could include larger lump sums or pay-outs for employees. In these cases, it’s possible to receive a higher redundancy pay package than the £30,000 limit. Employees might be responsible for paying tax on pay-outs above this threshold.

How is statutory redundancy pay calculated?

When breaking down how statutory redundancy pay is calculated, you must take age, pay rate, and years of service into account. Workers made redundant can receive:

• Half a week’s pay per year (for years when they were under the age of 22)

• One week’s pay per year (for years when they were between the ages of 22 and 41)

• One and a half week’s pay per year (for years when they were 41+)

Pay refers to the average earned per week. Workers who were on furlough through part of the period would use their normal earnings as part of this calculation.

As of April 2020, the statutory maximum limit to each week’s pay is £538 per week for a maximum of 20 years’ employment. At the current limits, this means that the maximum payment any employee can receive under the statutory scheme is £16,140. This limit is subject to change annually, so it’s helpful to look at the GOV.UK website’s redundancy calculator for the latest figures.

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