Redundancy is, unfortunately, an issue affecting many people in the current economic climate. If you're threatened with redundancy, or have been made redundant, find out about your legal rights and where you stand in terms of redundancy pay.
How to calculate redundancy pay
The amount of redundancy pay you are entitled to depends on a number of things: your age, your pay, how long you've worked for your employer, and whether your employer is willing to pay you more than the statutory minimum entitlement.
Statutory redundancy pay is worked out by multiplying your years of service by your gross weekly pay. The maximum weekly amount of pay that can be counted is currently £430 (this figure is usually revised upwards in February each year).
- If you're aged under 22, you'll receive half a week's pay for each year of service (only service after the age of 16 counts).
Calculate what you might receive if you were made redundant using the calculator at www.employmentrights.co.uk
- For each year of service during the whole of which you were 22 or above but less than 41, you receive a week's pay.
- For each year of service for the whole of which you were aged 41 or above, you receive one and a half week's pay.
So if, for example, you were made redundant on 1 March 2012 and you were going to be 44 on 1 June and had been employed since 1 July 2005, you would have had six complete years of service on your redundancy date. For two of those years you would have been not less than 41, so your maximum redundancy pay would be:
2 x 1.5 x £430 = (£1290) + 4 x £430 (= £1,720) Total: £3,010.
Is redundancy pay tax free?
In most cases it is - there is no tax on the first £30,000 of a payment made because your employment has been terminated.
Statutory redundancy pay cannot be more than £12,900, so it will usually be tax free. But if your employer is more generous in the way it calculates redundancy payments, you might have to pay some tax. Get advice if the redundancy pay you are going to receive is more than £30,000.
Redundancy during pregnancy
Your employer can make you redundant while you are pregnant, but it's unlawful for your employer to select you for redundancy because you're pregnant or because you're intending to take maternity leave, or have taken it in the past.
Redundancy selection criteria must be objective and non-discriminatory, based on factors such as skills, experience and disciplinary records.
Absence records can be used to make redundancy selections, but they should be adjusted to discount absence for reasons such as antenatal appointments, pregnancy-related illness or maternity leave.
Redundancy during maternity leave
It's not uncommon for employers to seek to make women redundant while they're on maternity leave. But if your employer does decide to make you redundant during your ordinary or additional maternity leave, you have special protection.
- It would be unlawful for your employer to select you for redundancy because you were on maternity leave, (but it would not necessarily be unlawful for your employer to select you for redundancy during maternity leave provided it used objective and non-discriminatory criteria).
- If you are selected for redundancy during maternity leave, you're entitled to be offered an alternative job if one is available. The job must be suitable and appropriate, and the terms of employment must be not substantially less favourable than those of your old job. These rules effectively put women on maternity leave in a better position with regard to alternative employment than colleagues who are also facing redundancy. But the law in this area is complex and you should seek advice if you find yourself in this position.
Redundancy, pensions and benefits
Benefits that you receive as part of your employment contract, such as pension contributions, private health cover, death-in-service benefit or gym membership, will ordinarily end when your employment ends.
Sometimes it's possible to negotiate extensions to these to tide you over until a new job starts and, occasionally, you may be able to 'take over' the benefit by entering into an agreement with the provider on favourable terms (although you would usually have to pay any premiums yourself).
Your accrued pension rights or benefits will not be adversely affected by redundancy, but you should take advice about the best way to handle the funds you have built up. The rules will also differ significantly according to whether you work in the public or private sector.
Some employers provide benefits that only apply if you're being made redundant, such as out-placement counselling or careers advice. There are tax exemptions for some types of career counselling, so you may find this is available for free.
If you've taken out private insurance in case of redundancy to cover major outgoings such as your mortgage, check the terms of your policy carefully before taking any decisions on the assumption that you have adequate cover in place.
Some employers seek volunteers for redundancy as a way of trying to avoid compulsory redundancies. Very often, they will endeavour to make voluntary redundancy attractive by offering a better package to volunteers.
If you believe you may be at risk of redundancy, it is worth investigating what your employer is offering - you should be able to do this without committing yourself one way or the other.
You may also find that your employer will not offer the voluntary redundancy package to you because it would prefer to retain you.
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The content on this page is supplied by the Employment team at law firm Withers LLP.