Redundancy FAQ

 

« Additional to contractual redundancy »

Should statutory redundancy pay be paid in addition to any contractual redundancy settlement?

Statutory redundancy pay is the minimum amount that should be paid to an employee based on age and length of service. It is not a payment made or supported by the government. If the amount of contractual redundancy pay does not reach the statutory amount then the contractual amount has to be increased to either equal or exceed the statutory amount. Statutory Redundancy pay can be calculated here. A company may elect to pay the statutory amount in addition to the contractual amount but is under no legal duty to do so unless it is contractually required to. All contractual requirements must form part of the contract of employment.

« Redundancy pay and student loans »

Will a student loan deduction be made from redundancy pay?

Only pay that is subject to a national insurance deduction is classed as pay that a student loan deduction can be taken from. As redundancy pay is free from both tax and national insurance there will be no student loan taken from it.

« Re-employment after redundancy »

Can a person be re-employed by the same company after being made redundant by them?

As redundancy pay is compensation for a breach of the employment contract under which they were employed it does not stop the ex-employee re-starting with the same employer once the original reasons for the redundancy (possibly a down turn in business) have changed or passed. The contract under which the new employment is made does not continue on from the previous contract; it is a brand new period of employment with the length of service starting at zero.

« Reclaimable redundancy payments »

Are statutory redundancy payments reclaimable form HMRC?

No they are not. The employee has a statutory right to receive the payment but it is funded by the employer as as it is the employer that has breached their own contract of employment. The statutory right is there to ensure that a minimum amount is paid.

« Redundancy pay exceeding £30,000 »

If redundancy and other compensatory payments exceed £30,000 what tax and NI implications are there?

Whether the payment is redundancy or a PILON (Payment In Lieu Of Notice) or a mix of both any amount exceeding £30,000 will be subject to tax and national insurance in the normal manner. A PILON payment is made to compensate for a breach of contract and is not normal notice pay i.e. pay whilst serving notice.

« Redundancy after retirement age »

Can a redundancy payment be made to an employee over the age of state retirement?

The rules regarding the upper (and lower) age limits were removed in October 2006 so any employee, subject to the normal qualifications, is entitled to receive a redundancy payment. Although the lower age limit of 18 was removed, in reality, the lower age limit is 16.

« Making the payment »

Can the redundancy payment be made through the normal payroll or does it have to be made as a special payment?

A payment of less than £30,000 does not have to be made through the payroll but any amount exceeding this has to be made through the payroll as it will be subject to tax and national insurance. Even though payments of less than £30,000 are tax and NI deduction free the normal way of paying it is via the payroll.

« SMP payments and redundancy »

Does SMP have to be paid once an employee is made redundant?

Once SMP has started the employer must continue to pay it until the employee ceases to qualify to receive it as it is part or fully funded by HMRC and is a statutory right. If an employee is made redundant whilst on SMP the SMP must be paid in full as well as the redundancy pay she is entitled to, the SMP payment is then reclaimed in the normal manner from HMRC.