In order to make a person/position redundant, there are number of processes that must have been gone through to ensure a legitimate redundancy is being made. You as an employer should seek consultation to ensure correct procedures are followed during the redundancy process.
Once the process has been agreed, redundant employees have a number of rights, the main one being the right to receive a statutory redundancy payment (SRP).
In order to receive a SRP the individual concerned must:
• Have the employment status of being an employee
• Have at least two years’ continuous service
• Have been dismissed, laid off or put on short-term working, ie those who opted for early retirement do not qualify
A redundant employee also has the right to receive a written statement setting out the amount of any redundancy payment and how you worked it out. You must make the payment when or soon after you dismiss the employee.
Calculation of a SRP
A SRP is based on:
• The employee’s age. Counting back from the date of dismissal, they receive 1.5 weeks’ pay for a year of employment after their 41st birthday, one week’s pay for a year of employment after their 22nd birthday and 0.5 week’s pay for a year of employment up to their 22nd birthday
• Their length of service with you. Counting back from the date of dismissal, this is capped at 20 years
• Their weekly pay. This is subject to the statutory limit on a week’s pay, which is £430 where the employee’s employment ends on or after 1 February 2012.
Currently, the maximum SRP payable is therefore £12,900.
As long as it’s not more than £30,000, a SRP is not taxable. Any redundancy payment you make in addition to SRP is subject to tax and National Insurance (NI).
You must be careful however, when you are making other termination payments to the employee at the same time, e.g. a payment in lieu of notice and holiday, as you may have to deduct tax and NI for these.