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Redundancy pay: a guide


Redundancy pay: a guide

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Redundancy fears hang over one in 10 UK workers, research has revealed.

According to a study by Lee Hecht Harrison Penna at the turn of the year, 11% of British workers believed they would be likely to be offered redundancy in 2019, while more than a third (38%) of UK employees view redundancy as a threat. The research also highlighted that a quarter (25%) of workers said that reducing their monthly spending would be one of the first things they’d do if they were to lose their jobs.

As we approach the festive period and fears of redundancy become a reality for thousands across the country in the wake of shock closure of high street stalwart  Thomas Cook and Mothercare on the brink of closure, we’re shining a light on the rules and regulations surrounding redundancy and the money staff could be entitled to.

What is redundancy?

Redundancy is a form of job loss. It usually happens when companies want to cut down on the amount of staff they have, or certain jobs are no longer needed.

It’s important to remember that being made redundant isn’t always as a result of your ability to carry out your job. In some cases, it may be that the company is has entered administration, is closing down, moving to a smaller space or has been bought by another company.

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What is redundancy pay?

When you are made redundant, you may be entitled to redundancy pay. This is a lump sum of money given to you as part of the agreement for you leaving the company.

The amount you receive will differ depending on your employer and your length of service. There is a tax-free allowance of £30,000, which means you won’t owe any income tax or National Insurance contributions on payments up to this value. Anything above this will be considered income and will be taxed at your normal rate.

Statutory redundancy pay

The law states that companies need to give a minimum redundancy payment to those that are eligible. This is known as statutory redundancy pay.

You are normally eligible for this is you have been working for the company for two years or more. This must be continuous and doesn’t apply to agency workers.

If your employer decides to pay you more than the statutory amount, then this is known as contractual redundancy pay.

How much is statutory redundancy pay?

The amount of statutory redundancy pay you are entitled to is dependent on a number of different factors. These include your age, how long you’ve worked for the company and how much your wage is before tax.

If facing redundancy, it’s important to be aware of how your payment could be calculated based on the below:

  • Half a week’s pay for each full year at the company that you were under 22 years old
  • A full week’s pay for each full year at the company that you were over 22 but under 41
  • 5 weeks’ pay for each full year at the company that you were over 41 years old

The length of service is capped at 20 years, and as of April 2019, your weekly pay is capped at £525. The maximum amount you can receive for statutory redundancy pay is £15,750.

There is a calculator available online from HMRC that allows you to work out how much you should be entitled to.

Voluntary redundancy pay

In some cases, employers will give people the choice to take redundancy. This is usually offered to more long-term or senior employees but can also be put out as an offer to other members of staff to apply.

As far as the law goes, your rights will not change in these instances as it is still thought of as dismissal. This means your employer will still have to go through the same process.

You’re still eligible for statutory redundancy pay, however, you will generally be offered more as an incentive for applying.

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Redundancy rights

If you’re facing redundancy, then your employer is legally obliged to treat you fairly and in line with what it says on your contract. This includes having a conversation with you about the redundancy and making sure you’re given the appropriate notice period.

You have a right to a fair process, meaning that you can appeal your employer’s decision if you think you have been chosen for redundancy unreasonably. If you can’t get anywhere with this, then you can take them to a tribunal.

How much of a notice period you have depends on how long you have worked for the company, however, below offers a guide:

  • At least a week’s notice for employees who have worked for the company between a month and two years.
  • A week’s notice for each year employed for those who have worked for the company between two and 12 years.
  • 12 weeks’ notice for those who have worked for the company more than 12 years.

It can sometimes be the case that your employer may ask you to use remaining holidays to fill your notice period or to not work the period at all. In these cases, they may offer you a lump sum of money known as ‘pay in lieu of notice’, which is taxed at your normal rate.

As far as your right to a consultation goes, your employer needs to have a conversation with you before making you redundant. They must tell you the situation and give you the opportunity to ask any questions or make any objection.

Redundancy and debt

When you have bills to pay, being made redundant will have a serious impact on your finances – forcing you to make changes to your life such as cutting back on things and watching your money religiously.

This often leaves people with no choice but to turn to credit to help cover the cost of day-to-day life during this time, which isn’t helped by the fact you’ll have limited money to make repayments.

For those made redundant who are in debt solutions such as an IVA, it’s possible to use your redundancy pay to settle your arrangement. This can either clear your remaining payments, or your debts in full – meaning your debts will be dealt with a whole lot quicker.

If you’re struggling with your finances after redundancy, contact us today on 0808 2234 102 for free advice.

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