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How to calculate statutory redundancy pay

By 18/05/2020August 15th, 2022Business, statutory redundancy pay
statutory redundancy pay calculation

Whether your business is going through a period of change, you’ve enlisted new ways of working or you’re changing location or closing branches; the ever-changing tides of the economic environment and the very nature of business means that making staff redundant is one of the most frequently used methods by employers to cut costs. Deciding to proceed with redundancies must be a last resort, and all other avenues or solutions must be explored before staff are made redundant.

Employees must be selected for redundancy in a fair way. This may be down to their level of experience, skills or ability to do the job. You cannot select employees for redundancy based on age, gender or if they are disabled or pregnant; this would be classed as unfair dismissal. The UK government cites “skills, qualifications and aptitude, standard of work and/or performance, attendance and disciplinary record” are fair reasons for selecting an employee for redundancy.

Following a period of consultation and consideration, those employees that have been selected to be made redundant may be entitled to statutory redundancy pay.

Is an employee eligible? 

In order to eligible for statutory redundancy pay, an employee must have at worked continuously for you for at least two years, they must be working under a contract of employment and they must have been dismissed, laid off or put on short-time working. Those employees that choose to take an early retirement do not qualify.

The amount payable to an employee depends on their age, wage and length of service. Under current government legislation, employees that are being made redundant are entitled to:

– Half a weeks’ pay for each full year of service where they’re under 22,

– One weeks’ pay for each full years of service if where they’re aged between over 22 but under 41,

– One and a half weeks’ pay for each full year of service where they’re over 41 years’ old.

The length of service is capped at 20 years and weekly pay at £571 in England, Scotland and Wales. The weekly pay is capped at £594 in Northern Ireland.

The maximum amount of statutory redundancy pay is £17,130 in England, Scotland and Wales. This is capped at £17,820 in Northern Ireland.

How to calculate statutory redundancy pay

Jane is 47 years’ old on the day she is made redundant. She has been continuously employed in your business for 19 years (you should only count full years of service) since she was 28 years’ old. Her weekly pay before tax and any other deductions is £475.

Below, we demonstrate how to calculate the statutory redundancy pay that Jane is entitled to, based on this information.

Step 1:

1 weeks’ pay x 13 years of service when Jane was under 41 = 13 weeks’ pay

Step 2:

1.5 weeks’ pay x 6 years of service when Jane was over 41 = 9 weeks’ pay

Step 3:

13 weeks + 9 weeks = 22 weeks’ pay.

Step 4:

£475 weekly pay x 22 weeks = £10,450

Of course, employers can choose to offer more than the statutory minimum or have a qualifying period of less than two years’ service. The details of your company’s policy on redundancy pay should be outlined clearly in your contract of employment. Statutory redundancy pay is tax-free up to £30,000. Employees are also entitled to a written statement that details the amount of redundancy pay they will receive and how you calculated it.

Keeping track of employee tenure, rates of pay and their age can be challenging, especially if you’re making significant, large-scale redundancies. HR software is ideal for businesses to keep track of employee records, training certifications, performance reviews, disciplinary and attendance records and much more.

 Please note: while we here at Natural HR work with HR professionals every day, we are not lawyers. This post is a high-level overview of Statutory Redundancy Pay and how to calculate it. This post should not replace sound legal advice available from professional solicitors or employment lawyers.