This article forms part of the reference collection published by Harper James, a UK commercial law firm advising businesses on the laws of England and Wales. An employee is generally entitled to statutory redundancy pay when they are dismissed because their role is no longer needed, they have at least two years’ continuous service, and they are an employee rather than a genuinely self-employed contractor. Certain exclusions apply, including some cases involving misconduct, refusal of suitable alternative employment, or an offer to renew employment on suitable terms.
Statutory redundancy pay is based on the employee’s age, weekly pay and complete years of service. The calculation provides half a week’s pay for each complete year worked while under 22, one week’s pay for each year worked from age 22 to 40, and one and a half weeks’ pay for each year worked at age 41 or over. Service is capped at 20 years, and weekly pay is subject to the statutory maximum in force on the relevant calculation date. Employers should check the current cap before calculating the payment. A contract or redundancy policy can provide enhanced redundancy pay, but it should be applied consistently and in accordance with its terms.
A fair redundancy process normally includes a genuine consultation before any final decision is made. The employer should explain the proposed business reason, identify the roles affected, consider alternatives, and give employees a reasonable opportunity to respond. Selection criteria should be objective, evidence-based and free from discrimination. Employees on maternity, adoption or shared parental leave have additional protection in relation to suitable alternative vacancies. Where an employer proposes at least 20 redundancies at one establishment within a 90-day period, collective consultation requirements apply. The minimum period is 30 days before the first dismissal where there are 20 to 99 proposed redundancies, and 45 days where there are 100 or more. Individual consultation remains necessary, and the employer must submit the required HR1 notification.
The employee’s final payment normally includes salary to the termination date, accrued holiday pay and either notice pay or a payment in lieu of notice, where applicable. Statutory redundancy pay and qualifying enhanced compensation are generally tax-free up to a combined £30,000, while notice pay, salary and holiday pay are normally taxable. Employers should provide a written calculation, retain consultation and selection records, and issue the required written statement confirming the redundancy and termination date. Errors in the process can lead to claims for unfair dismissal, discrimination or failure to carry out collective consultation, even where the role genuinely no longer exists.