Law guide: Employment

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Redundancy payments

Redundancy payments

Redundancy payments

Statutory redundancy pay

A redundant employee will not be entitled to a statutory redundancy payment unless they have at least two years' service. The amount of statutory redundancy pay due is related to age, length of service and average earnings and you must provide the employee with a written statement of how the amount has been calculated.

Use the GOV.UK calculator to calculate how much statutory redundancy pay your employee will be entitled to.

Statutory redundancy pay is not taxable. An employer is no longer entitled to a rebate on statutory redundancy payments.

Enhanced redundancy pay

Depending on the terms of your employee's employment contract and/or any staff handbook, your employee may be entitled to a contractual redundancy payment in addition to the statutory redundancy pay.

Failure to pay this will be a breach of contract and may result in a county/high court claim in England, Wales and Northern Ireland, or a sheriff court/Court of Session claim in Scotland, or a complaint being made to an employment tribunal.

Enforcement of payment

The employer is primarily responsible to pay a redundancy payment. You must give your employee a written statement of how the amount has been calculated.

If you fail to make a payment or there is a dispute about the amount, your employee is entitled to refer the matter to an employment tribunal.

Your employee will be entitled to make a claim to an employment tribunal for a redundancy payment or to challenge the amount of the payment if within six months of the dismissal (the 'initial period') any of the following are true:

  • Payment is agreed and made
  • You receive written notice from the employee claiming a redundancy payment
  • The employee has referred the question of a right to a redundancy payment, or the amount of the payment to the employment tribunal
  • A complaint of unfair dismissal has been presented to the employment tribunal (within three months of the effective date of termination of employment)

However, please note that the six month initial period can be extended if the employee does any of the above after the initial period and so long as it appears to the employment tribunal that it would be just and equitable for the employee to receive a redundancy payment having regard to all the relevant circumstances including why the employee failed to take these steps within the 'initial period'.

Where your employee is entitled to a statutory redundancy payment from you, but you are insolvent and the redundancy payment remains unpaid, the employee may apply to the Redundancy Payments Office at the UK Insolvency Service for payment from the National Insurance fund.

Re-employment offers

A redundancy payment is intended to compensate your employee for loss of their job. Therefore, if they are re-employed by you, or by an associated employer, they do not need compensation and may not be entitled to a redundancy payment.

Offers to renew or re-engage

An offer to renew employment is the offer of an old job back where, for example, you secure a new customer and find that work is beginning to increase again. An offer of re-engagement involves an offer of a different job with the same or an associated employer.

Even if dismissed by reason of redundancy, employees will lose the entitlement to a redundancy payment if they unreasonably refuse an offer of suitable alternative employment.

The Employment Rights Act 1996 (or Employment Rights (Northern Ireland) Order 1996) provides that your employee is not entitled to a redundancy payment if they unreasonably refuses an offer, whether oral or written:

  • made by you or an associated employer; or
  • made before the contract of employment comes to an end; or
  • to re-employ them in the same or some other suitable employment;

provided that the renewal or re-engagement is to take effect within four weeks of the end of the original contract.

If the offer does not comply with the above requirements, then the employee will be entitled to a redundancy payment, even if they unreasonably refuse it.

Employees who accept an offer that complies with all the requirements are treated as though they had not been dismissed. Employment is not broken, but as there is deemed to have been no dismissal, there is no entitlement to a redundancy payment. This will be the case whether or not the alternative employment was suitable.

If an offer is rejected, then the question of whether or not your employee is entitled to a redundancy payment will depend on whether the alternative employment was suitable.

If the alternative offered was unsuitable, the employee will be entitled to a redundancy payment. If the employee acted unreasonably, the right to the redundancy payment is lost.

Whether or not an alternative offer of employment is suitable is ultimately a question for the employment tribunal to decide. They will objectively look at the key factors that include pay, nature of duty, status, hours, place etc. The question is whether the new job is substantially equivalent to the old job.

It is not always easy for your employee to decide whether they should take up alternative employment or whether such alternative employment is suitable. You may also have doubts as to the employee's suitability for the new job. The law therefore provides that there shall be a 'trial period' of four weeks, beginning with the date on which your employee starts work under the new contract.

If either you or your employee terminates the contract during the trial period for a reason connected with the redundancy, the original dismissal by reason of redundancy will be revived. Whether or not the employee is entitled to a redundancy payment will still be based on whether the alternative employment was suitable.

If the terms of employment do not change, but there is merely a change in the identity of the employer, then there is no trial period. If the new employment involves retraining, you and your employee can agree before work starts under the new contract, that the trial period be extended. The agreement must then specify the date on which the extended period ends.

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