Out-Law Guide | 21 Aug 2019 | 3:58 pm | 1 min. read
An employee can lose his right to redundancy pay if he unreasonably rejects an offer of suitable alternative employment.
Statutory redundancy pay
SRP is calculated as follows (subject to a maximum 20 years' service):
The week's pay is subject to a statutory minimum, which is reviewed annually. There is a useful calculator on the Directgov website for working out redundancy payments.
If the employer is insolvent and cannot pay the redundancy payment then the employee is entitled to claim that amount, as well as certain other unpaid sums, from the state out of the National Insurance Fund.
Contractual redundancy pay
An employer could be contractually obliged to make an additional redundancy payment. This obligation could arise from the written contract of employment, a collective agreement with a trade union, a letter given to employees (perhaps as a loyalty incentive in uncertain times) or as an implied contractual term through custom and practice – however, this is much more difficult for employees to establish than is often thought to be the case.
There may be a policy of paying enhanced redundancy payments which is not contractual.
'Ex gratia' or non-contractual redundancy pay
An employer may choose to pay an enhanced redundancy package for a variety of reasons:
When fixing or agreeing an enhanced package, regard should be had to other relevant laws including discrimination laws - the age discrimination law in particular.
Tax on redundancy payments
Statutory, contractual and non-contractual redundancy payments are exempt from tax up to a limit of £30,000. However, a calculation must be done for Post-Employment Notice Pay, which could impact on tax treatment on the part of the payment which relates to the notice period, and any payment in lieu of contractual sums earned during employment, such as bonuses or accrued holiday pay, will be subject to tax and National Insurance Contributions (NICs).