What is statutory redundancy and what are your rights?

November 26, 2021

It is a situation which no one wants, but sadly some do experience. If you are being made redundant it can be an extremely scary and confusing time, that is why Kirk Hills, a local team of chartered accountants in Exeter, has written this article to help you understand not only what statutory redundancy is, but helping you realise your rights. 


What is statutory redundancy? 


Statutory redundancy is the process where an employee is formally dismissed from their job, but it is different to simply being fired. Often this happens when an employer needs to reduce the size of their workforce. Take what has happened as a result of COVID, businesses have been hit incredibly hard by a global pandemic, which has meant they have had to make tough decisions to simply stay afloat. According to the Office for National Statistics, the UK saw a faster increase in redundancy rates than during the economic downturn and recession of 2008 to 2009. 


It relates to the money which a company is lawfully entitled to pay to its workers who will or have lost their jobs. These employees are deemed no longer needed by the organisation, but they must have worked at the company for two years to meet the qualifying period for statutory redundancy. 


Who pays for statutory redundancy? 


As we have just mentioned, you must first have worked for your employer for two years to be entitled to statutory redundancy pay. After which, your employer is legally obliged to pay you, and you are legally entitled to some form of payment. It is important at this stage, if you have not already, to check your employment contract to understand what your rights are. 


Contractual Redundancy Payments


Take a look at your contract and see if there is a point on redundancy payments, they may provide you with the same or more than your statutory redundancy entitlement. If there is no mention of this in your contract, then you are likely only entitled to statutory redundancy pay. 


 What if my employer is unable to pay my redundancy? 


When facing redundancy, it is highly likely that your employer is urgently needing to reduce their workforce to limit outgoings for the business, meaning they are facing some financial difficulties. They should still be in a position to pay your statutory redundancy, but if you are part of a larger organisation, they may find this difficult. 


If an employer is unable to pay employee redundancy payments, or other debts, then they face insolvency. It could be any number of types of insolvency, like liquidation or bankruptcy, but in any case, there will be a person placed in charge of dealing with your employer’s affairs. These can be ‘official receivers’ or ‘insolvency practitioners’, but they will be able to make the situation clearer for you to help you understand who is going to your redundancy.


What about a settlement? 


You may well be offered some form of settlement by your employer. If you are being made redundant on enhanced terms, you would normally expect to sign a settlement agreement, a legal document which says that you will not bring any claims against your employer. Before signing anything, it is important that you get legal advice, this is typically paid for by your employer. 

How much statutory redundancy pay should I receive? 


Now, you have an understanding of what statutory redundancy is, who will pay it, and who is entitled. It is time to figure out how much statutory redundancy pay you should be expecting from your employer. It is important to note that you will not have to pay any tax on your payment. 


The figures are based on your gross pay, which is what you earn before tax. A simple breakdown is as follows – 


For each full year you’ve worked for your employer, you get:


  • If you are up to age 22 – half a week’s pay
  • If you are aged 22 to 40 – 1 week’s pay
  • If you are aged 41 and older – 1.5 weeks’ pay
  • If you turned 22 or 41 while working for your employer, the higher rates only apply for the full years you were over 22 or 41.


However, there are limits as to how much you will receive. No matter how much you earn, the maximum weekly amount is £544. Similarly you need to be aware that you can only get redundancy pay for 20 years of employment. By that we mean that if you have worked for a company for 26 years you will still only be able to get redundancy pay for 20 years of service. 


Facing the prospect of redundancy is never easy, but by understanding what it is and knowing what your rights are regarding how much you are owed, we hope that you can navigate this period of your life a little easier.

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