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Topic: Redundancy

redundancy payment calculation
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Redundancy payment calculation

Redundancy payment calculation

On making a redundancy payment, you’re under a statutory duty to supply a written statement indicating how the amount of the payment has been calculated, and this is based on the employee’s age, length of employment and gross weekly wage. Our redundancy payment calculation will ensure you comply with your obligations here.

Payment entitlement

Where an employee has not acquired a minimum of two years’ continuous employment with you when their employment terminates because of redundancy, and assuming they have no contractual right to an enhanced redundancy payment, you’re not obliged to give any redundancy pay. However, all employees with two or more years’ continuous employment will be entitled to receive at least a statutory redundancy payment (SRP), which you have to pay.

Written statement

The Employment Rights Act 1996 requires you to set out in writing how you’ve calculated the SRP when you make it. There’s already space for you to include this calculation in our Redundancy Termination Notice but many employers prefer to give a separate, more detailed calculation at the time the payment is actually made (normally on the last day of employment or very shortly thereafter), so you can use our Redundancy Payment Calculation form for this purpose. There’s no official prescribed form for providing the redundancy payment calculation, so our form will work perfectly, as it gives sufficient detail to enable the employee to see exactly how the total SRP figure has been arrived at. It includes the employee’s employment start and end dates, the “relevant date” (see further below), their total number of complete years of employment, age and the amount of their gross week’s pay. With that information to hand, it then sets out precisely how the SRP has been calculated and you just need to fill in the relevant figures.

Payment calculation

When you come to calculate an SRP, you will need three important pieces of information: (1) the employee’s age (there are no lower or upper age limits); (2) their number of complete years of employment (up to a maximum of 20), and (3) what their week’s pay figure is (subject to the statutory cap on a week’s pay). Redundancy payments are based on gross pay. Once you have that information, the calculation is:

  • one and a half weeks’ pay for each complete year of employment in which the employee was aged 41 and over
  • one week’s pay for each complete year of employment in which the employee was aged between 22 and 40 inclusive
  • half a week’s pay for each complete year of employment in which the employee was aged 21 and under.

An employee’s length of continuous employment and age for SRP purposes should be calculated as at the “relevant date”. This is normally the employment termination date when the employee has been given their proper notice period. However, if they’ve been made redundant without the statutory minimum notice to which they’re entitled (even if you’ve paid them in lieu of notice), the relevant date is the date on which the statutory minimum notice period would have expired had it been given.

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