How does redundancy pay work?

Redundancy is a tough process for many companies who cannot retain their employees due to economical reasons. On top of the financial stress that would have led to the redundancy decision, the intricacies of redundancy pay can make the process much more difficult for you as a business owner…

Here are answers to some of your most common questions about redundancy pay

Who is eligible for redundancy pay?

Any employee who has worked for you for at least 2 years is entitled to redundancy pay (providing they also have an employment contract).

How much redundancy pay are employees entitled to?

All eligible employees are entitled to statutory redundancy pay which will vary depending on their age, how long they’ve worked for you and their weekly earnings. Use the government’s redundancy pay calculator to determine exactly how much is due. 

Depending on your employment contracts, employees may also be eligible for contractual redundancy pay based on the criteria outlined in the contract. Consult a HR representative if you’re unsure what your employment contract says.

Are there any limits on redundancy pay?

An employee can only receive statutory redundancy pay for up to 20 years of employment even if they have worked for your company for longer than this. Statutory redundancy payments also cannot exceed £16,140.

How much redundancy pay are furloughed staff entitled to?

From 1st July 2020, the Government have stated that redundancy pay should be based on the employee’s full pay amount (i.e. pre-furlough). We recommend getting in touch with an expert to help you with this process to ensure no mistakes are made.

When are redundancy payments due?

As an employer, you should pay redundancy pay on the date your employee leaves work, or a pre-agreed date soon after.

How are redundancy payments made?

You should pay redundancy payments to your employees in the same way you paid their wages, for example into their bank account.

It’s never nice to have to make an employee redundant, but unfortunately, it is essential to help the business continue trading.

For assistance with any part of the redundancy process including the redundancy notice period, redundancy pay or voluntary redundancy get in touch