If you’re in a redundancy situation and you’ve been offered a settlement agreement then you will understandably want to be aware of what financial payments you are entitled to receive as a result of your redundancy.
An employee who is dismissed for the reason of redundancy is entitled to receive:
- A statutory redundancy payment (SRP), should they have worked for their employer for 2 years or more
- Payment for your notice period – you should receive your statutory minimum notice period or contractual notice period (if greater)
- Any enhanced redundancy pay agreed, provided that this is within the contract of employment, in a collective agreement with a trade union or, alternatively, if it’s been agreed at your employer’s discretion
Statutory redundancy pay
Statutory redundancy pay is calculated as follows:
- 0.5 weeks’ pay for each year of service completed before you were 22
- 1 weeks’ pay for each year of service completed when you were between 22 and 40 (inclusive)
- 1.5 weeks’ pay for each year completed after reaching the age of 41
There is a maximum of 20 years’ service that can be used to calculate the above. Currently, the maximum amount of SRP that an employee can receive is capped at £13,500 (as of November 2013).
Alternatively, you can use this useful redundancy pay calculator for SRP on the Direct Gov website.
If your employer has become insolvent and cannot therefore pay the SRP then you can apply to the National Insurance Fund to be paid this sum, as well as a number of other unpaid sums.
You should check your contract of employment to determine how much you are owed in notice pay. If you do not have a contract of employment then you should be paid for your statutory notice period (1 weeks’ pay for every year worked at your employer up to a maximum of 12). If you do have a contract of employment and your contractual entitlement is greater than the statutory notice period then you should be paid this amount.
Contractual notice pay
You should check your contract of employment to determine whether you’re owed contractual redundancy pay (an additional payment above and beyond your statutory redundancy pay). If there is no term in your contract of employment then your employer may be obligated to pay you an additional redundany payment through a collective agreement with a trade union, through a promise in a letter to employees or if your employer habitually pays employees made redundant an enhanced payment (and this term therefore becomes a term implied by custom and practice).
Non-contractual redundancy pay (“ex-gratia” payments)
Your employer may also choose to pay an enhanced redundancy package for the following reasons:
- As compensation for your agreement to settle any outstanding claims in the employment tribunal or high court (i.e. unfair dismissal, discrimination, breach of contract etc.)
- To maintain goodwill with former and current employees
- As an incentive for you to sign your settlement agreement