Basics of Redundancy Pay in the UK

Basics of Redundancy Pay in the UK

Basics of Redundancy Pay in the UK

Every employee ever has had a fear of suddenly losing his/her job. A job guarantees financial security and peace of mind. You can fearlessly take on debts knowing that you’ll have an income to manage the repayments. But, positive things don’t always happen in life. If you’re a UK citizen and have been working with a particular employer or company for more than two years now, you can claim redundancy money if you get the pink slip. The minimum amount by law is the ‘statutory redundancy pay’. What is it and how does it work? Read further to know more…

 

How Do I Know Whether I’m Eligible For Redundancy Pay?

If you’ve been working at the same firm for 24 months or more and your boss suddenly removes you from work, you have the right to claim redundancy pay.

 

What’s The Difference Between Statutory and Contractual Redundancy Pay?

The basic difference lies in the fact that while statutory redundancy pay is the legal minimum, contractual redundancy pay depends on individual work contracts. Remember that your employer cannot pay you less than the amount specified as statutory pay. Also, if your contract says so, they may have to pay you more. This means that you effectively receive a bigger payout or lump sum even though you have worked for less than two years. However if your contract or staff handbook has no mention of redundancy anywhere, assume you’ll get the minimum salary prescribed by law to help cope with the sudden income loss. Check for ‘contractual pay’ in your contract.

 

How Much Redundancy Pay Will I Get?

The amount you’re supposed to receive as redundancy pay from your employer depends on the following three factors:

  • How long you’ve been working there
  • What your age was during your service
  • Your current salary- upto £508/ week maximum in 2018-19 (£500 in Northern Ireland)

Unfortunately, even pay for job loss in the UK has a cap over which it cannot go. This is £15,240 for 2018-19 and it’s even lower (£14,700) if you’re living and working in Northern Ireland. So, this is the limit upto which you can get redundancy pay even if your salary is higher or length of service was longer. As for length of service, only complete and continuous years of service count. Let’s take a look at the table below.

Your age Redundancy Pay
Under 22 Half week’s pay for every one year of service
22 – 40 A week’s pay for every one year of service
Over 41 A week and a half’s pay for every one year of service

 

 redundancy pay

An example of its calculation

Smith (now aged 35) worked part-time as night receptionist for an e-commerce firm for 10 years earning £300 a week. He got the slip yesterday. His redundancy pay calculation is as follows:

Ten weeks’ pay for the 10 years he worked aged 25 to 35 = £3,000

 

What Is Pay In Lieu Of Notice?

There’s no way your employer can just take you off work without giving a notice beforehand. You must get a statutory minimum notice period of 1 week upto 2 years of service and 1 additional week’s notice if you’ve worked for more than 2 years. The maximum notice period is 12 weeks. You should check your employment contract if there might be an even longer notice period.

During your notice period, you can expect to keep working but you may sometimes be allowed to leave earlier or immediately. A form of redundancy pay you’ll get is pay in lieu of notice (PILON). This is the compensation provided by the employer for early termination of your contract.

How is PILON taxed?

The law has changed for PILON from 6 April, 2018. All PILON payments- whether contractual or non-contractual- are now subject to income tax and National Insurance deductions. What this means for terminated employees: PILON pay is taxable in the same way whether you worked during the notice period or not. Termination payments that are over and above PILONs still get the benefit of £30,000 NIC and tax exemption.

 

Why Should I Demand Holiday Pay To Be Included With My Redundancy Pay?

Naturally, UK employees have paid leaves. If you have any holidays you haven’t taken, you should claim holiday pay for it or take those holidays before you leave. Don’t forget holiday pay!

 

What Is the £30,000 Tax-free Redundancy Pay?

Your redundancy pay is likely to be a mix of a compensation amount for your job loss and other amounts. The first £30,000 of this is tax-free, regardless of whether it’s statutory redundancy pay or contractual redundancy pay. You won’t pay National Insurance on it. But any pay you get for the work done such as PILON is taxable as pay.

 

What If My Employer Goes Bankrupt?

In case your employer goes bust, they wouldn’t be able to pay you your statutory redundancy pay or holiday pay. You’ll have to claim it from the State directly. This can be easily done by filing an RP1 form available at the Redundancy Payments Service.

 

My employer’s creating problems- What Can I Do?

First of all, it’s best to have a chat with your employer without escalating things. You can freely have a discussion if you’re getting a lower-than-expected redundancy pay or you’re unhappy with the treatment being given to you. If this doesn’t work, you can take things to the trade union rep. If your firm doesn’t have one, why not complain using the employer’s grievance procedure? A higher authority offering free and impartial advice is the Acas (the Advisory, Conciliation and Arbitration Service) and the Labour Relations Agency.

 

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