18th January 2021

Redundancy during Coronavirus Part 4 : How do I calculate redundancy payments?

The Government guidance and restrictions are constantly under review at the moment which is impacting the way in which employers will be running their business. We understand that, due to the great uncertainty at the moment, employers may be considering redundancies now or in the near future once the Government’s furlough scheme comes to end. We have therefore updated our redundancy blog series which was originally released last year with some useful tips and guidance on how to carry out a redundancy consultation process.

In Parts 1, 2 and 3 of our series of blogs we looked at when a redundancy situation might arise, gave an overview of both individual consultation and collective consultation, explained how to fairly select those employees who will be at risk from redundancy and set out how to conduct a redundancy consultation. In Part 4 we focus on statutory redundancy payments: who is entitled, how are they calculated and the circumstances when they might not be paid.

Who is entitled to a redundancy payment?

An employee working for their employer continuously for two years or more is entitled to a statutory redundancy payment.

How is statutory redundancy calculated?

It is calculated with reference to age, length of service and statutory weekly maximum or cap as follows:

  • half a week’s pay for each year of employment between the ages of 18 and 22;
  • one week’s pay for each year of employment between the ages of 22 and 40; and
  • one and a half week’s pay for each year of employment over the age of 41.

The minimum age that a statutory redundancy payment can be made is 18 to a maximum of 65. Where the employee is over the age of 64, the payment is reduced by one-twelfth for each month over the age of 64.

A maximum of 20 years’ employment can be taken into account and the statutory limit for weekly pay is currently £538 per week.

The quickest and easiest way to calculate a statutory redundancy payment is to use the redundancy calculator on the GOV.UK website.

Can an employer pay more than the statutory redundancy payment?

Some employers choose to pay more than the statutory redundancy payment either by making a payment to employees with fewer than 2 years’ service or by ‘topping up’ the statutory redundancy payment for those who do qualify, for example, by increasing the number of week’s pay for each year of employment or lifting the statutory limit for weekly pay. This is typically called an enhanced or company redundancy payment.

An employer considering making an enhanced payment based on an employee’s age or length of service must be careful not to leave itself exposed to an age discrimination claim and at the very least, should think how it might objectively justify such a potentially discriminatory scheme.

Unless an enhanced redundancy payment expressly includes the statutory redundancy payment, a redundant employee will still be entitled to this.

Does an offer of alternative employment affect the statutory redundancy payment?

Employers have a duty to consider the issue of suitable alternative employment before deciding to dismiss by reason of redundancy (see Part 3 for more details about Redundancy Consultation). Where an offer of suitable alternative employment has been offered to and refused by an employee, he or she will lose their entitlement to a statutory redundancy payment. However, the employer will have to show that both the offer was suitable and the employee’s refusal was unreasonable.

If an employee has accepted an offer of suitable alternative employment a 4-week statutory trial period applies (the employee and the employer can agree a longer period). This allows the suitability of the new job to be assessed and by the end of the trial period, the employee must have decided whether or not to accept the new job permanently.

Where the employee believes the new job is unsuitable, he or she must give the employer notice to terminate the contract and, if the employer agrees that the new job is unsuitable, the employee is treated as having been redundant and is entitled to be paid a statutory redundancy payment. There will be no entitlement to a statutory redundancy payment is the new job is suitable and the employee acted unreasonably in refusing it.

Suitability will include objective job-related factors including pay, status, hours and location. Reasonableness of a refusal will depend on the employee’s individual circumstances but factors that can be taken into account include: a perceived loss of status, a longer travelling time to work; different skill requirements; expense; childcare responsibilities; and health.

The calculation of statutory redundancy payment is relatively straightforward but employers paying enhanced redundancy payments should exercise caution with how it is calculated. The intricacies of suitable alternative employment are complex, particularly given the employee’s individual circumstances need to be carefully considering before deciding whether any refusal is unreasonable. It is far preferable (and cheaper) for employers to take advice before they refuse statutory redundancy payments.

If you need any advice about carrying out a redundancy exercise, get in touch with Blackadders’ Employment Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.

Donna Reynolds, Partner
Accredited by the Law Society of Scotland as a Specialist in Employment Law & Discrimination Law
Employment Law
Blackadders LLP
@EmpLawyerDonna

www.blackadders.co.uk

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