When should I receive my redundancy payment?

Redundancy is defined as a business closure, workplace closure, or a diminished requirement of a business for employees to carry out work of a particular kind. Employers sometimes use redundancy as a reason for terminating an employee’s employment contract when businesses decide to reduce the number of employees either within the business as a whole, at a particular site or office, or when a function or a job role diminishes.

Redundancy is topical at the moment because of the recession which the UK is facing. The law does not generally interfere with an employer’s freedom to make business decisions and it can be unfortunate for employees that employers are not required to justify the reasons for making redundancies.

Provided that a Tribunal is satisfied that there is a genuine reason for dismissal – and note that redundancy is one of potentially five fair reasons why an employee can be dismissed – business requirement and redundancy in light of those circumstances is not generally tested by Tribunals.

The leading case on establishing whether an employee has been dismissed by reason of redundancy is a case known as Safeway Stores PLC v Burrell, which formulated a three-stage test to determine whether a redundancy dismissal [proper] has been realised for the purposes of applying the statutory definition of redundancy.

Employees are more likely to realise business closure as a reason for redundancy; which may be wholly or partially attributable to the fact that employers have ceased to, or intend to, cease carrying on businesses of a particular type.

When it appears that employers are replacing one business with another, a Tribunal may have to look at whether any new business is sufficiently different in nature from the original business, such that it can be seen that the original business actually ceased.

Workplace closures tend to be more clear-cut for establishing that redundancy was the reason for dismissal, for obvious reasons.

When an employee has over two years’ service, a statutory redundancy payment is payable to an employee when they are dismissed by reason of redundancy. In many cases, the question of entitlement to, and the calculation of, a statutory redundancy payment is fairly straightforward. However, in some cases, uncertainty surrounding an individual’s status can sometimes get in the way of things.

Whilst statutory redundancy payments are usually payable to employees, some employees are excluded from this right. Unreasonable refusal of an offer of alternative employment, failure to work a notice period, or misconduct at work are just some of the reasons why an employee may lose their entitlement to a redundancy payment.

How do you calculate a statutory redundancy payment?

The amount of a statutory redundancy payment to which an employee is entitled depends on their age, length of service, and salary. This is calculated by determining the period during which the employee was continuously employed, and which ends with what is known as the “relevant date”. One then counts backward from the relevant date, allowing for the “appropriate amount” for each of the employee’s complete years of continuous employment for that employer.

The appropriate amount is equal to 1½ weeks’ pay for each complete year of service in which the employee was aged over 41, 1 week’s pay for each complete year of service in which the employee was aged 22-40, and ½ a week’s pay for each complete year of service in which the employee was under the age of 22 for any part of the year.

The figure will be used to calculate the multiplier for an employee’s weeks’ pay as at the calculation date. A “week’s pay” is subject to a statutory maximum allowed for it, which is currently £538.  Anything earned over that will not count toward the statutory calculation.

If an employee earns less than that per week, then the multiplier used to calculate the week’s pay is their lower weekly earnings rate, whatever that is for them.

Often, employees believe that they have not been offered suitable alternative employment being dismissed for a redundancy reason before the dismissal takes place. Such circumstances can be relevant to the question over whether an employee has been unfairly dismissed (provided they have over two years of service in that employment) and whether eventual dismissal would have been inevitable.

You can calculate your statutory redundancy payment on the government website.

Although there is guidance, there is no prescribed way for handling redundancies in the ACAS code. It is good practice for employers though to prepare for making redundancies by, amongst other things, identifying, properly, any at-risk role(s), consulting with potentially redundant people in good time, developing a fair criteria upon which to score those in the redundancy pool before making dismissals and considering what suitable alternative employment there could be for employees who may be redeployed elsewhere within the business.

What are the time limits for redundancy?

Generally, an employee will not be able to bring a statutory redundancy payment claim unless one of four events occurs within a six month period beginning with the relevant date:

• The payment is agreed and paid by the employer;
• The employee makes a written claim for payment to the employer;
• The employee’s right to a redundancy payment is referred to an Employment Tribunal;
• The employee presents a claim for unfair dismissal to an Employment Tribunal.

What is temporary redundancy?

Employees may be able to bring a claim for redundancy payments if they have been made redundant temporarily for either more than four consecutive working weeks; or, more than six non-consecutive weeks within a reference period of 13 weeks.

When are redundancy payments not applicable?

• If your employer offers to allow you to resume work; or
• If your employer offers you suitable alternative work which you refuse.

Who is responsible for meeting the cost of redundancy payments?

One’s former employer is responsible for paying a redundancy payment (if the employee qualifies), in order to provide them with compensation for failing to keep them employed. In some instances, redundancy pay will be provided in the next payroll date after the termination of the employment.

In cases where insolvency of the employer is an issue, contact of the Insolvency Service is advised and the Redundancy Payment Service (RPS), a Government agency, may, subject to certain conditions which both the employer and employee must meet, pay the statutory redundancy pay and notice pay on behalf of an employer.

What do I do if my redundancy payment doesn’t arrive on time or at all? 

If an employer does not pay statutory redundancy pay at the agreed time, the first step should be to contact them and remind them of their default.

If the employer still fails to pay the redundancy payment, a claim to an Employment Tribunal can be brought either together with, or without (depending on the circumstances), a claim for unfair dismissal.

Although the time limit for bringing a claim for unfair dismissal is three months from the date of one’s effective date of termination, a claim for redundancy must be brought within six months of the date that the payment was entitled to be received (as discussed above).

Before considering a claim for unfair dismissal, an employee should be advised to understand their rights in relation to the circumstances prevailing at the time of dismissal and, as such, obtaining specialist legal advice before bringing a claim is always advised.

Our friendly Employment Law team are available if you would like further advice, please contact us on 01206 700113 or email [email protected]