What Money Are You Entitled To If Made Redundant? | moneyfacts.co.uk

Derin Clark

Derin Clark

Online Reporter
Published: 12/08/2020

Official employment figures released this week from the Office for National Statistics (ONS) revealed that between March and July, the number of people in employment fell by 730,000 and as the furlough scheme comes to an end in October 2020, many expect the rates of employment to fall further in the coming months.

Data released has also shown that those predominately impacted by redundancy since the Coronavirus pandemic have been young workers in their early to mid-20s and older workers aged 65 and over.

Saying this, redundancy can affect anyone at any stage of their life and, although being made redundant is an extremely challenging time for the majority of people, knowing what your financial rights are helps to make the situation a little bit easier.

This article, which is the first in a series of redundancy articles we are writing to help consumers facing redundancy, looks at what money those being made redundant are entitled to.

What redundancy pay are you entitled to?

Employees eligible for redundancy pay can either get statutory redundancy pay, which is what employees are entitled to by law, or contractual redundancy pay, which is additional redundancy money outlined in the employee’s contract.

If employees are entitled to contractual redundancy pay, this will be outlined in their employment contract and employees should check the contract to see if/what they are entitled to.

The amount employees will receive through statutory redundancy will depend on their age and how long they have been working for their employer:

  • Those aged 18-22 will get half a week’s pay for each full year they have worked for their employer.
  • Those aged 22-40 will get one week’s pay for each full year they’ve worked for their employer.
  • Those aged 41 and older will get 1.5 week’s pay for each full year they’ve worked for their employer.

If the employee has turned 22 or 41 while working for their employer, they will only get the higher rate for the full years they worked when they were aged over 22 or 41.

There is a maximum weekly limit of £538 under statutory redundancy pay, even if the employee has earned more than this. As well as this, employees will only get a maximum of 20 years’ work. This means that the maximum statutory redundancy pay employees can receive is £16,140. 

You can find out how much statutory redundancy pay you are entitled to using the statutory redundancy pay calculator on GOV.UK.

Who can get statutory redundancy pay?

Statutory redundancy pay is only available to employees who have been working for their employer for two years or more and have lost their job because there was a genuine need to make redundancies in their workplace.

Those on fixed term contracts will also receive statutory redundancy pay if the employer does not renew the contract due to the job no longer existing and the fixed term contract has lasted for two years or more or shorter contracts have been worked that have followed on from each other and added up to a minimum of two years.

If either of these criteria has been met, employees will not get statutory redundancy pay if they have turned down a suitable alternative job offered by their employer for no good reason, they want to leave before the notice period has ended, or they are fired for gross misconduct.

What happens if the business has gone into administration?

If the company you work for goes into administration, also known as being in liquidation or insolvent, employees entitled to statutory sick pay should be contacted by the company’s insolvency practitioner who will provide information about how to apply to the Government for redundancy pay.

Employees of companies that have gone into administration may be entitled to other pay, such as holiday pay, even if they are not entitled to statutory redundancy pay. Again, the insolvency practitioner should provide information about how to apply for this, but it is normally done through the Redundancy Payment Service.

How do you get redundancy pay?

Employees entitled to redundancy pay with a business that has not gone into administration should get their redundancy pay on the day they leave work. The redundancy pay should be received in the same way the employee receives their wages, normally directly into their bank account.

Do you have to pay tax on redundancy pay?

Redundancy pay of up to £30,000 is tax-free. It should be noted that just the redundancy pay is exempt from tax, and pay received during the notice period remains taxable. The tax should be automatically refunded and it is the employer’s responsibility to ensure that this is done correctly and the money should be received in the final pay.

Disclaimer

Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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